Has Best Buy pulled its act together?
The beleaguered electronics retailer beats earnings forecasts, but expectations were low and its stock is still to be avoided.
Profit plunged 25% to $158 million, or 46 cents a share, versus $212 million, or 65 cents, a year earlier. Excluding one-time items, profit for the three months ended May 5 was 72 cents, beating the 59 cent average forecast of Wall Street analysts. Revenue rose 2% to $11.6 billion.
The stock was up nearly 2% Tuesday to $18.50.
The results are a pleasant surprise for the Richfield, Minn., company, which has struggled during the economic downturn. Former CEO Brian Dunn recently announced plans to slash thousands of workers and close 50 stores as the largest consumer electronics retailer tried to regain its competitive edge against rivals such as Amazon (AMZN). Best Buy offered steep discounts during the quarter, which seemed to work.
The company saw sales growth in tablets, mobile phones, electronic readers and appliances. But those increases were more than offset by sales declines in areas that included notebooks, games and televisions.
Investors remain uneasy about Best Buy for many reasons. Dunn abruptly resigned last month after the board found that he had an inappropriate relationship with a female employee. The appointment of G. "Mike" Mikan as the interim CEO hasn't helped matters. A story in the Minneapolis Star-Tribune reported that he "will receive prorated cash payments based on a total annual package of $3.3 million." Moreover, he will get a $2.2 million "bonus" regardless of how the company performs, the paper said. Corporate governance expert Jeffrey Sonnenfeld told the Star-Tribune that paying Mikan a bonus is "ridiculous" because he hasn't earned it.
Shares of Best Buy had slumped more than 20% before Tuesday. Top Stocks contributor Peter Pham recently noted that the company's shares are cheap, though he wasn't recommending their purchase. I concur because Best Buy remains in pretty rough shape, this quarter's strong results notwithstanding.
Mikan came to Best Buy from UnitedHealth Group, and his lack of retail experience may hurt Best Buy. Remember, the results in the quarter were pretty dismal. Comparable-store sales plunged 5.3%, with international sales tumbling a whopping 10.5%, hurt by the slowdown in the Chinese economy. Selling, general and administrative expenses rose 2% to $2.51 billion. Best Buy also incurred $127 million in restructuring charges during the quarter, mostly related to employee severance costs. Best Buy affirmed a fiscal 2013 earnings outlook of $3.50 to $3.80 a share, a range wide enough to drive a Mack truck through.
The tough times at Best Buy are not easing anytime soon, especially if the economy falters. Investors should avoid the stock for the foreseeable future.
Jonathan Berr does not own shares of the listed companies. Follow him on Twitter@jdberr.
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