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Best Buy First-Quarter Results Reflect Messy Mobile Gadget Industry


The consumer electronics retailer is seeing a huge countertrend rally off of what were probably low expectations, but it's not likely to last.

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Shares of consumer electronics retail giant Best Buy (NYSE:BBY) traded down in early action but reversed higher after the company delivered its first-quarter earnings report.

Here are the important headline facts and figures:

  • EPS came in at $0.33, beating expectations by $0.13.
  • Revenues were $9.04 billion, missing the $9.22 billion consensus.
  • Same-store sales were -1.9% vs. Wall Street's -0.8% forecast.
  • Domestic same-store sales were -1.3%.
  • Domestic online revenue was up 29.2% year-over-year. This is faster than (NASDAQ:AMZN) but comes off a much smaller base.
  • Best Buy said it expects negative low-single-digit SSS for Q2 and Q3.
  • Earnings guidance for Q2 and Q3 is below consensus forecasts.
  • Domestic gross margin fell 70 bps year-over-year due to a less favorable credit card agreement, increased product warranty costs, and other issues.
  • International gross margin fell 80 bps on an increased mix of lower-margin gaming (like the new Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE) gaming consoles) and computing products, and increased promotional activity in Canada.
In the earnings release, Best Buy's CFO Sharon McCollam said the following:

As we look forward to the second and third quarters, we are expecting to see ongoing industry-wide sales declines in many of the consumer electronics categories in which we compete. We are also expecting ongoing softness in the mobile phone category as consumers eagerly await highly anticipated new product launches.

This makes sense given all the news and data we've seen coming out of the consumer electronics industry as of late:

1. PC, tablet, and smartphone sales are all slumping

2. The digital camera industry is in decline.

3. The TV industry is also in rough shape, with Sony recently warning its sales could fall below forecast. The advent of 4K doesn't look like it has given the industry much of a boost, though Best Buy said it is seeing decent traction.

4. Demand for the new video game consoles and software has been okay, and Best Buy should benefit from the Xbox One price cut. However, that's offset by low margins in the segment and the decline of Nintendo (OTCMKTS:NTDOY) as an industry force.

5. Wearables may have potential, but it's still a tiny market.

So what's next?

The only really big consumer electronics product I see on the horizon is the big-screen iPhone 6, which of course has not even been announced yet. And in any case, given where we are in the smartphone cycle, that would be more of a share taker from Samsung (OTCMKTS:SSNLF) than something that expands the pie.

Best Buy is seeing a huge countertrend rally off of what were probably pretty low expectations, but I doubt it will last.

Twitter: @MichaelComeau

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