Best Buy Co., Inc. (BBY), a specialty retailer of consumer electronics, Thursday reported a decline in its fourth-quarter profit, hurt by restructuring and impairment charges. On an adjusted basis, earnings per share dropped 6%, yet came in above analysts' view.

Best Buy's quarterly revenue rose year-over-year, reflecting the inclusion of revenue from Best Buy Europe and new store additions. The company also established fiscal 2010 outlook. The shares were trading up about 15% on the New York stock exchange.

The ongoing economic crisis has hurt sellers of discretionary products deeply, as it has forced consumers to sharply cut back on their spending. A shaky job market and a prolonged housing slump have added to the gloom. In addition, consumer electronics retailers are facing stiff competition from discount retailers such as Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT).

Q4 Earnings

The company reported fourth-quarter net earnings of $570 million, or $1.35 per share, compared with $737 million, or $1.71 per share, last year.

The 2008 fourth quarter recorded pre-tax restructuring and impairment charges of $144 million, or $112 million after-tax or $0.26 per share. The restructuring charges included a $78 million pre-tax charge for separation costs, which were incurred in order to reduce the company's ongoing cost structure and to support its fiscal 2010 priorities. The fiscal 2008 fourth-quarter results also included non-cash asset impairment charges of $66 million related to the current valuation of intangible assets associated with the company's Speakeasy business.

Excluding these charges, earnings were $682 million, or $1.61 per share, down 6% from the prior-year quarter.

On average, 22 analysts polled by Thomson Reuters expected the company to report earnings of $1.40 per share. Analysts' estimates typically exclude special items.

Q4 Revenue, Comps

Best Buy's quarterly revenue grew 10% to $14.72 billion from $13.42 billion in the comparable quarter a year ago. Eighteen analysts had a consensus revenue estimate of $14.82 billion for the quarter.

The company's revenue growth reflected the inclusion of Best Buy Europe's revenue and gains from the net addition of 213 new stores in the past 12 months, offset by lower comparable store sales and the unfavorable impact of foreign currency fluctuations. The negative impacts of lower comparable store sales were partially offset by revenue gains from new store openings as well as an improvement in the gross profit rate. Excluding foreign currency effects and the impact of adding Best Buy Europe, total fourth-quarter revenue dropped 2% year-over-year.

The comparable store sales, a key measure of health for retailers, declined 4.9%, on top of a 0.2% decline in the prior-year quarter, due to a reduction in customer traffic, partially offset by an increase in average ticket. U.S. comparable store sales declined 2.5% in the combined January and February period, compared with a 6.8% comparable store sales decline for the month of December.

Segmental Synopsis

Domestic

Best Buy's domestic segment generated fourth-quarter revenues of $11.3 billion, a marginal rise of 1% from last year. Domestic comparable store sales declined 4.8%, reflecting poor customer traffic, partially offset by an increase in average ticket.

Consumer electronics, which represented 40% of the fourth-quarter revenue, posted a comparable store sales decline of 8.6%. A mid-single-digit comparable store sales growth in flat-panel televisions was more than offset by low double-digit declines in digital cameras, MP3 players and GPS devices, the company noted.

International

In the fourth quarter, the international segment reported a 54% rise in revenues to $3.4 billion, driven by the inclusion of revenue from Best Buy Europe as well as the net addition of 77 new stores in the past 12 months. However, these gains were partially offset by the negative impact of foreign currency fluctuations and a comparable store sales decline of 5.3%. Excluding the addition of Best Buy Europe and the negative impact of foreign currency exchange rate fluctuations, international revenue remained essentially unchanged from the prior-year quarter.

FY09 Performance

Bets Buy earned $1 billion, or $2.39 per share, in fiscal 2009, down from $1.41 billion, or $3.12 per share, last year. Revenue rose to $45.02 billion from $40.02 billion in fiscal 2008. Wall Street analysts projected full-year 2009 earnings of $2.65 per share, on revenues of $45.13 billion.

Q3 Highlights

In December 2008, Best Buy had announced a drop in its third-quarter profit, hurt by an investment impairment charge, despite 16% revenue growth. Net earnings for the quarter were $52 million, or $0.13 per share, while adjusted earnings per share reached $0.35. Revenue for the third quarter was $11.50 billion.

Peer Performance

Among rivals, Circuit City Stores, Inc. (CC, CCTYQ.PK), which had been liquidating its assets, closed its last 567 stores this month. The company filed for Chapter 11 bankruptcy protection, ahead of the holiday season in November, due to a deteriorating cash position and stringent terms from vendors. The company, which could not find a buyer or an investor, said in January that it would seek Bankruptcy Court approval to begin the process to liquidate its assets.

Another competitor, Wal-Mart's fourth-quarter profit was lower, hurt by lawsuit settlement charges and unfavorable currency exchange rates. Net income for the quarter declined to $3.79 billion, or $0.96 per share, from $4.096 billion, or $1.02 per share, in the year-ago quarter. Revenues rose to $109.12 billion from $107.34 billion last year, reflecting higher U.S. comparable store sales and net sales, offset in part by a drop in International sales.

FY10 Outlook

Best Buy expects fiscal 2010 earnings per share in the range of $2.50 - $2.90. This represents an average decrease of 6% from fiscal 2009 adjusted earnings per share.

The company also sees revenues between $46.5 billion and $48.5 billion along with a comparable store sales change of 0% (flat) to down 5%. The revenue outlook represents an average increase of 6% over fiscal 2009. Analysts expect fiscal 2010 earnings of $2.47 per share, on revenues of $48.05 billion.

BBY is trading at $38.43, up $4.97, on a volume of 15.96 million shares.

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