Why Best Buy Is Warning of Lower Revenue in Q2

Does Best Buy’s Dismal Outlook Mean It's Not a Great Buy?

(Continued from Prior Part)

1Q17 revenue exceeds expectations

Best Buy’s revenue in 1Q17, which ended on April 30, 2016, was $8.4 billion. The company exceeded the consensus revenue estimate of $8.3 billion. However, Best Buy’s 1Q17 revenue fell 1.3% year-over-year.

1Q17 revenue down

The decline in Best Buy’s revenue in 1Q17 was due to about 55 basis points of currency headwind. Excluding the impact of adverse foreign currency fluctuations, Best Buy’s revenue was negatively affected by domestic and Canadian store closures.

The electronic retailer’s same-store sales fell 0.1% in 1Q17. Note that Best Buy includes its online sales in the same-store sales computation. The company’s Domestic segment’s online sales rose 23.9% in 1Q17, driven by continued improvement in digital customer experience and enhanced capabilities, including faster shipping.

In terms of merchandise categories, strong sales growth in the health and wearables, home theater, and appliance categories was offset by continued softness in mobile phones and tablets.

Specialty retailer Aaron’s (AAN) reported a 4% growth in its first quarter sales while GameStop’s (GME) sales fell 4.3%. Conn’s (CONN) is scheduled to report its 1Q17 results on June 2. The retailer sells furniture, home appliances, consumer electronics, and other merchandise. It reported a 14.2% decline in the same-store sales from its consumer electronics category for the quarter ended April 30, 2016.

Segment performance

The 1Q17 revenue of Best Buy’s Domestic segment fell 0.8% to $7.8 billion due to a loss of revenue from 13 large-format and 24 Best Buy Mobile store closures. Best Buy’s international segment revenue fell 8.1% to $614 million due to currency headwinds and the loss of revenue associated with closed stores in Canada as part of the Canadian brand consolidation. In March 2015, Best Buy consolidated its Future Shop and Best Buy stores and websites in Canada under the Best Buy brand. The SPDR S&P Retail ETF (XRT) has 1.2% exposure to Best Buy.

Expected sales in 2Q17

Best Buy expects overall 2Q17 revenue in the $8.4 billion to $8.5 billion range, a decline of 2.1% to 0.9% year-over-year. The company expects its international revenue to fall 5% to 10% in 2Q17. Read Part 5 of this series for more information on the company’s 2Q17 outlook.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Best Buy Stock Down on Weak Outlook, CFO Departure

• Part 3 - What Drove Best Buy’s Higher Margins in Fiscal 1Q17?

• Part 4 - Best Buy Wants to Improve Sales: What’s It Got up Its Sleeve?