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Best Buy Earnings Preview: Has The Turnaround Failed?

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Best Buy (NYSE: BBY), which already has said that its holiday sales declined 2.6 percent, is scheduled to report its fiscal fourth-quarter and full-year results Thursday, February 27, before the markets open.

Investors no doubt will be glad to put the disappointing holiday period in the rear-view mirror and will be looking for further signs of progress in the retailer's turnaround. Updates on the cost-cutting initiative Renew Blue and on the roll-out of the ship-from-store program are examples.

See also: Retailers On The Ropes: 7 Companies Expected To Have A Difficult 2014

Expectations

Analysts on average predict that Best Buy will say that its revenue for the quarter dropped more than 12 percent year-over-year to $14.66 billion. Earnings of $1.01 per share are also in the consensus forecast. That would be down from $1.55 per share in the same period of last year.

Analyst sentiment has dropped, as just 60 days ago that consensus earnings per share (EPS) estimate was all the way up at $1.61. But note that analysts underestimated Best Buy's EPS in the previous four quarters. The earnings beat in the third quarter was by 50 percent.

Sales were flat in the third quarter though. The company warned of a tough competitive environment in the fourth quarter but said it was committed to "winning" the holiday season with promotional activity. The share price fell around 11 percent following the third-quarter report.

The analysts' consensus full-year forecast calls for $1.84 per share in earnings on sales of $42.71 billion. Best Buy posted earnings of $2.62 per share and $49.62 billion in revenue in the previous year. That consensus EPS estimate has also dropped in the past 60 days, from $2.43.

The Company

Best Buy operates as a bricks-and-mortar and an e-commerce retailer of consumer electronics in the North America, Europe and China. Brand names include Best Buy, The Carphone Warehouse, Five Star, Future Shop, Geek Squad, Magnolia Audio Video, Pacific Sales, Cell Shop, Connect Pro and The Phone House.

The company was founded in 1966, and its headquarters are in Richfield, Minnesota. It now has a market capitalization of less than $9 billion. Hubert Joly has been chief executive officer and president of the company since September 2012.

Competitors include Amazon.com (NASDAQ: AMZN) and Walmart (NYSE: WMT). Fourth-quarter results for the former, and its outlook for the current quarter, fell short of expectations. Last week, the latter posted results in line with consensus estimates and its guidance was soft.

See also: Highlights from Wal-Mart's Q4 Earnings Conference Call

During the three months that ended in January, Best Buy saw the Xbox One and PlayStation 4 launched, exclusively offered the Samsung Galaxy S4 in blue, added Cabela's CEO to its board and announced those disappointing holiday sales that tanked shares. Founder Richard Schulze sold more than 1.7 million shares.

Performance

Best Buy has a long-term earnings per share growth forecast of less than five percent. Its return on equity is in negative territory. The operating margin is less than that of Walmart, and its forward earnings multiple is less than Walmart's price-to-earnings ratio. Best Buy has a dividend yield of near 2.8 percent.

The number of Best Buy shares sold short, as of the most recent settlement date, represents around 10 percent of the total float. That was the highest level of short interest since last March. It would take a little more than one day to close out all of the short positions.

For the past three months, the consensus recommendation of the analysts surveyed by Thomson/First Call who follow the stock has been to buy shares. The analysts' mean price target, or where they expect the stock to go, is almost 25 percent higher than the current share price.

The share price is down almost 38 percent year-to-date but still up about 48 percent year-over-year. The 50-day and 200-day moving averages formed a death cross in mid-February. Over the past six months, Best Buy has underperformed not only the competitors mentioned above, but also the broader markets.

At the time of this writing, the author had no position in the mentioned equities.

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Posted-In: Amazon.com best buy cabela's WalmartEarnings News Previews Trading Ideas Best of Benzinga

 

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