Shares in Best Buy Co., Inc. (NYSE: BBY) have jumped about 6% this morning following the company’s better-than-expected second quarter earnings report. Best Buy reported EPS of $0.60 on revenue of $11.39 billion, topping expected EPS of $0.46, but missing on expected revenue of $11.65 billion.
Best Buy shares are still down about -12% from a year ago, although the stock is outperforming Game Stop Corp. (NYSE: GME), which has lost about -28% of its share price in the past year. Another Best Buy competitor, RadioShack Corp. (NYSE:
RSH), is trading up about 20% for the past 12 months, but a lot of that is based on buyout rumors that have been swirling around Radio Shack for a while now.
Perhaps the best news from Best Buy is its revised guidance for its full 2011 fiscal year, ending next February. The company provided EPS guidance last March of $3.45-$3.60 on revenue of $52-$53 billion. In today’s report, the company raised both ends of its EPS range by $0.10, to $3.55-$3.70. Revenue guidance was more-or-less confirmed at $52 billion, and same-store sales are now expected to increase by 1%-2%. With the exception of the EPS figures, none of these points to a particularly strong second half for Best Buy.
The EPS guidance also includes “an estimated $0.10 cent favorable impact due to the share repurchases completed fiscal year-to-date,” although the company did exclude further share repurchases from its new guidance. Best Buy has spent about $700 million on share repurchases in the first half of its fiscal year.
There’s the catch. Best Buy doesn’t expect revenue or profit to grow organically. Instead, the company will force EPS growth by re-purchasing shares. U.S. sales are down -1.4% in the second quarter, while international sales are up 4.3%. Unfortunately about 80% of Best Buy’s sales come from its US stores. For the first half of its fiscal year, Best Buy’s US same-store sales are up a measly 0.1% and international sales are up 5.2%. Six months worth of operating income in the US totals $705 million compared with international operating income of $19 million.
Best Buy expects to improve is US operating income rate by 40-55 basis points in the second half of its fiscal year. The company expects US operating income to grow “at the high-end of this range.” to make that happen the company is going to have to do something to grow its revenues faster because Best Buy also plans to increase its SG&A spending by about 6% for the full year.
The company’s second quarter earnings look good, but it appears that Best Buy has already counted its chickens and that there might be none left to hatch.
As of this writing, Paul Ausick did not own a position in any of the stocks named here.
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