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Best Buy: Why Lower Phone and Tablet Sales Hurt Fiscal 4Q16 Revenue

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4Q16 revenue down

Best Buy’s (BBY) revenue in 4Q16, which ended January 30, 2016, fell 4.1% to $13.6 billion. The 4Q16 revenue was slightly ahead of the consensus Wall Street analyst sales estimate of $13.6 billion. Best Buy’s top line continued to be impacted by weakness in the phone and tablet categories. Best Buy’s revenue for fiscal 2016 fell 2% to $39.5 billion.

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Analyzing 4Q16 revenue decline

The 4Q16 revenue of Best Buy’s Domestic segment benefitted from strong performance in health and wearables, home theater, and appliances. However, softness in the mobile phone category and a continued decline in tablets pulled down Best Buy’s Domestic segment revenue 1.5%. In the 4Q16 conference call, Hubert Joly, Best Buy’s chairman and chief executive officer, stated that high smartphone penetration coupled with low consumer demand for current product offerings is hurting the phone category. The company believes more compelling phone launches this year could renew growth in this category.

Revenue of Best Buy’s International segment fell 26.2% in 4Q16 on a year-over-year basis due to adverse foreign currency movement and store closures in Canada. The iShares Russell Mid-Cap Value ETF (IWS) has 0.3% exposure to Best Buy.

The fourth quarter revenue of Aaron’s (AAN) and Conn’s (CONN) rose 8.1% and 7.4%, respectively. However, both specialty retailers experienced weakness in the consumer electronics category. GameStop’s (GME) holiday sales rose 1.8% to $3.0 billion. The company is expected to announce its fourth quarter results on March 24.

Strong growth in online revenue

E-commerce or online revenue remained a key growth driver in 4Q16. Online revenue rose ~14% and accounted for 15.6% of total Domestic segment revenue in 4Q16. For fiscal 2016, domestic online revenue rose 13% to over $4 billion or 11% of total Domestic segment revenue. Best Buy continues to build its new digital capabilities and enhance its customer shopping experience on phones and tablets. In the fourth quarter, Best Buy launched BlueAssist, which allows customers to get live help with products and orders through chat, call, and email simply by shaking their device.

We’ll discuss the company’s growth initiatives in the next part of this series.

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