Best Buy's (NYSE:BBY) Interim CEO discussed earnings and its recent beat. Interim CEO Mike Mikan also discussed upon the company's restructuring plan. The company reported earnings of 72 cents per share excluding restructuring costs. This is more than 59 cents analyst were expecting. Revenue was 11.61 billion, which is more than the 11.52 billion that analyst expected.
The reason the company saw an increase in sales was due to an extra week this quarter compared to last year. This showed a 2.1% increase in sales, in what really should have been a 4.3% decrease.
Best Buy has also be incurring significant costs due to its restructurings. The company continues to close down its stores. 41 stores have already been closed with a plan to close an additional 9 more. Best Buy has been trying to increase earnings by managing its cost structure, but I do not believe the company is doing it in an effective manner.
Best Buy is cutting back on advertising in order to save costs, but the issue with this strategy is that it will end up costing the company revenue and the potential to gain further market share. These changes have already shown executives leaving the company. The chiefs of technology and marketing have left the company. More resignations are expected to come from executives over the coming months.
The companies SSS fell 5.3% for the quarter and this is a trend that is expected to continue. The problem is not with Best Buy, rather it is the company's business model. We all know that big box retailers are taking a hit to companies like Amazon (NASDAQ:AMZN). Best Buy is just simply trying to keep itself alive, but how long can they manage this?
Best Buy has a plan to cut $800 million in costs, which should increase earnings. I do not see the company going bankrupt at all, but rather just slowly fading in market share and profitability.
The recent earnings beat shows that the market still isn't convinced on the company's turnaround just yet. I agree with the market on this and this earnings beat was simply just inflated to cost cutting and also the additional week during this quarter. The trend is still in favor of online retailers such as Amazon which have far superior pricing power. Best Buy also saw its gross margin fall 70 basis points. This leads us to believe that they are trying to be more competitive with Amazon. We should continue to closely monitor the situation at Best Buy and what the new interim CEO will be able to do.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.