uploads/2015/08/Best-Buy-Revenue1.png

What Drove Best Buy’s 2Q16 Revenue ahead of Estimates?

By

Updated

Revenue in 2Q16

Best Buy (BBY) posted revenue of $8.5 billion in the second quarter of fiscal 2016. The second quarter ended on August 1, 2015. Best Buy’s 2Q16 revenue came in ahead of the consensus Wall Street analyst estimate of $8.3 billion.

Best Buy exceeded the consensus revenue estimate in 1Q16 also.

Article continues below advertisement

Headwinds and tailwinds

Best Buy’s revenue growth of 0.8% in 2Q16 was driven by higher domestic segment revenue, which was partially offset by a 120-basis-point impact of currency headwinds. We’ll discuss the revenue growth drivers of the Domestic segment in Part 3 of this series.

The company’s 2Q16 revenue was adversely affected by brand consolidation in Best Buy’s Canada operations. In March 2015, Best Buy announced the closure of 66 Future Shop locations in Canada and the consolidation of the remaining Future Shop stores as well as its online channel under the Best Buy brand.

Decline in services revenue

Best Buy’s services revenue continued to decline in 2Q16. Services accounted for 5% of the company’s domestic segment revenue in 2Q16, down from 6% in 2Q15. Hubert Joly, Best Buy’s chairman and CEO (chief executive officer), attributed this decline to the drop in the frequency and severity of claims on extended warranties as well as the fall in the company’s traditional warranty business. The company is addressing the decline in the traditional warranty business by making its service offerings more compelling and price-competitive.

Best Buy constitutes 0.1% of the portfolio holdings in the iShares Russell 1000 Index (IWB) and 1.1% in the SPDR S&P Retail ETF (XRT).

Performance of peers

Amazon’s (AMZN) revenue grew by ~20% in the second quarter ended June 30, 2015. Its revenue growth was driven by a significant rise in AWS (Amazon Web Services) revenue, higher sales in growing categories such as electronics and other general merchandise, and enhanced product offerings.

Aaron’s (AAN) reported a 14.4% rise in its second-quarter revenue, driven by strong results from its Progressive leasing business, which the company acquired in 2014. GameStop (GME) reported a 1.8% rise in its second-quarter net sales, driven by strength in the collectibles and mobile and consumer electronics categories.

Advertisement

More From Market Realist