Reported Q1 earnings of $0.39 per share, $0.11 below the consensus estimates of $0.50; revenues rose 13.9% year/year to $7.93 billion $6.9 billion last year. Full year guidance lowered for 2008, to $2.95-3.15 vs. $3.16 previous.
Brad Anderson, vice chairman and CEO, stated, "Our first-quarter results fell short of our expectations. Strong revenue results from lower-margin products significantly cut into our gross profit rate."
The gross profit rate for the first quarter was 23.9 percent of revenue, a 150-basis-point decline compared with a gross profit rate of 25.4 percent of revenue for the prior-year first quarter. A significant contributor to the year-over-year decline was the inclusion of the China business acquired last June, which carries a significantly lower gross profit rate.
"Yet our customers continued to increase our market share. Our share gains, combined with other indicators we see, show that our core business is healthy. To us, the totality of our results suggests we are on the right track with our strategy, which is aimed at re-defining the customer experience." He continued, "Early evidence suggests that consumer spending will be more difficult to predict this year - but it appears to be accelerating in lower-margin categories. We are confident that flat-panel TVs, gaming and notebook computers will remain very appealing to our customers."
In short, more shoppers (my observation that stores were full was accurate), but the newly acquired China biz dragged down earnings. If you want to buy shares, you will get a great chance today as they will get hit hard and are already down $2.50 pre-market.
Fundamentally, there is nothing wrong with the business. They repurchased $412 million of stock in Q1 (about 8.6 million shares) and still have $800 million remaining under the current authorization. Expect them to announce an increase soon (if not today - the conference call is at 10am). Why? They said so. "In addition, as seen in the first quarter, we anticipate continuing our increased share repurchase activity," said Anderson.
How will this affect the rest of retail today? It really shouldn't. Revenues were good, which means folks are still shopping, and that is always good for retailers.
BBY 1-yr chart: