* Q1 EPS 36 cents vs Street expectation for 50 cents
* Weak TV sales, rising costs hurt profits
* Best Buy backs fiscal 2011 outlook
* Announces national trade-in program for video games
* Shares close down 6 percent
(Updates with sales detail, closing share price)
By Dhanya Skariachan
NEW YORK, June 15 Best Buy (BBY.N) reported
lower-than-expected sales and profit, hurt by rising costs of
expanding its business and weaker consumer demand, sending its
shares down 6 percent.
The top U.S. electronics chain said shoppers proved more
tentative in a seasonally weaker quarter for sales. That theme
has played out for many retailers as unemployment remains high
and Europe's economic troubles weigh on a global recovery.
"Consumer spending has been episodic and (it) appears that
our customers are operating on cues from the broader
environment," CEO Brian Dunn said on a conference call on
Best Buy posted a low single-digit decline in same-store
sales of televisions during its fiscal first quarter as well as
weak sales in its video gaming, music and movie categories.
Analysts also focused on a 12.3 percent rise in selling,
general and administrative costs, adding pressure to margins as
Best Buy continues to fight a fierce price war against larger
retailers Wal-Mart Stores Inc (WMT.N) and Amazon.com (AMZN.O).
"It is definitely a significant worry. When you think about
pricing... there is Amazon and Wal-Mart and a number of other
major retailers that are focused on this category and they
predominantly compete on price," Edward Jones' Matt Arnold
Net profit was $155 million, or 36 cents a share, for the
three months ended May 29, compared with $153 million, or 36
cents a share, a year earlier.
Analysts on average were expecting a profit of 50 cents a
share, according to Thomson Reuters I/B/E/S.
Selling, general and administrative expenses rose to 23
percent of revenue in the quarter from 21.9 percent a year ago.
The company said that increase was driven by new stores, higher
investments to boost sales and foreign currency fluctuations.
"I am not pleased with our overspend in the first quarter,"
CEO Dunn said in an interview, adding: "That being said ... Q1
is 10 percent of our year. This was a good place for us to make
some investments to set us up for the balance of the year."
Despite the huge miss, Best Buy backed its outlook for the
full year. Some analysts however remain skeptical.
Oppenheimer's Brian Nagel, who termed the company's outlook
as "aggressive," worried that Best Buy's expectations might be
"I usually applaud companies for making revenue and
margin-enhancing investments... The concern I have though is
that the degree to which Best Buy expects what seems to be an
immediate payoff from these investments," Nagel said.
CEO Dunn said while there may be no rapid huge paybacks,
he expected a steady return from the new initiatives.
For a graphic on Best Buy's results, click on:
In the first quarter, Best Buy's net revenue rose about 6.9
percent to $10.79 billion, missing analysts' expectations of
$10.93 billion. Sales at stores operating for at least 14
months increased 2.8 percent, boosted by sales of notebook
computers, mobile phones and appliances.
It expects a slower rate of expense growth in dollar terms
in subsequent quarters, with costs for full fiscal year 2011 up
6 percent to 6.5 percent from a year ago, excluding
restructuring charges from fiscal 2010.
Best Buy, which has benefited from being the only other
reseller of certain Apple products, is in for more challenges
from its rivals.
Wal-Mart on Tuesday confirmed it would sell the
fourth-generation iPhone on launch day. The retailer, which
prides itself on featuring "everyday low prices," declined to
comment on how it will price the new iPhone.
In a separate statement, Best Buy announced a new program
to allow gaming enthusiasts to exchange old games for Best Buy
giftcards. The news weighed on shares of GameStop (GME.N).
Best Buy reiterated its forecast for fiscal 2011 earnings
of $3.45 to $3.60 a share on revenue of $52 billion to $53
Best Buy shares closed down 6 percent at $38.58 Tuesday on
the New York Stock Exchange.
(Reporting by Dhanya Skariachan, additional reporting by Brad
Dorfman; editing by Maureen Bavdek, Tim Dobbyn and Gunna