Best Buy's online sales grew 24 percent in Q1, shares take a hit on soft guidance

The consumer electronics retailer said the earthquake in Japan last month is causing disruption in the supply of some high margin products, which could reduce Q2 EPS by 12 cents to 13 cents.


Best Buy's first quarter saw online sales and net income on the rise, but its stock tumbled in early trading Tuesday after the company warned of a potential financial hit coming in Q2.

The consumer electronics retailer said the earthquake in Japan last month is causing disruption in the supply of some high margin products, primarily digital imaging devices. The supply drought could be enough to reduce Best Buy's Q2 EPS by 12 cents to 13 cents, the company said.

Compounding the instability, Best Buy announced that its chief financial officer Sharon McCollam was stepping down after the company's June 14 investor meeting.

McCollam returned to Best Buy three years ago when the retailer was in the thick of a revenue crisis, and Best Buy insists her departure was long planned. Chief strategic growth officer Corie Barry will become CFO, and the chief administrative officer duties will be split up.

As for the rest of Best Buy's balance sheet, the retailer delivered Q1 net income of $229 million on earnings of 69 cents a share.

Non-GAAP earnings were 44 cents a share on revenue of $8.4 billion. Wall Street was expecting earnings of at least 35 cents a share on revenue of $8.29 billion.

In terms of guidance, Best Buy expects Q2 EPS between 38 cents and 42 cents per share with revenue in the range of $8.35 billion to $8.45 billion. Analysts were expecting earnings of at least 50 cents per share.

"Although we are reporting better than-expected results today, we are not raising our full year outlook as the first quarter represents less than 15 percent of full year earnings and at this stage we have no new material information as it relates to product launches throughout the year," said Best Buy CEO Hubert Joly

Nonetheless, Joly said Best Buy's domestic business was essentially flat during the quarter, versus an expected decline of up to two percent. Joly credits the uptick to solid growth in its online channel, where e-commerce sales grew 24 percent to $832 million.

Joly also highlighted strong year-over-year growth in health and wearable devices, as well as home theater equipment and appliances. These segments helped to offset the continued decline in mobile phones and tablets, he said.

The company has had a longtime love/hate relationship with the mobile industry. For years now, when consumers were buying more mobile devices like phones and tablets, Best Buy's revenues increased, but when sales dried up, revenue took a hit.

Unfortunately for Best Buy, the company is at the mercy of consumer and manufacturer upgrade cycles and it has few products to fall back on when mobile slows down. But growing sales of wearable devices is a positive sign that mobile is becoming less of a drain on Best Buy's revenue.