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Best Buy Stock Down on Weak Outlook, CFO Departure

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Impact of 1Q17 results

Best Buy’s (BBY) stock price fell 7.4% on May 24 even though the company exceeded the consensus analysts’ earnings estimate for 1Q17, which ended on April 30, 2016. The market reacted negatively to the company’s weak guidance for 2Q17 and the news of Best Buy’s chief financial officer’s departure. We’ll discuss the company’s 2Q17 outlook in Part 5 of this series.

As of May 26, Best Buy’s stock price has risen 4.2% since the start of the year.

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Improvement in 1Q17 earnings

Best Buy’s earnings, adjusted for one-time items, were $0.44 per share in 1Q17. The company’s 1Q17 adjusted EPS (earnings per share) exceeded the consensus analysts’ earnings estimate of $0.35. Best Buy’s 1Q17 adjusted EPS rose 18.9% year-over-year. The improvement resulted from the company’s Canada operations, which have moved past the adverse impact of last year’s brand consolidation.

The company’s bottom line also benefitted from a $0.04 per share benefit due to share repurchases. Share repurchases enhance earnings per share by reducing the number of outstanding shares. At the end of 1Q17, the company’s diluted average common share outstanding reduced by 8.6% to 326.7 million.

Best Buy’s 1Q17 adjusted EPS were negatively impacted by lower revenue from the company’s Domestic segment and a higher non-GAAP (generally accepted accounting principles) effective income tax rate. The SPDR S&P 500 ETF (SPY) has about 0.1% exposure to Best Buy.

Specialty retailer Aaron’s (AAN) reported a 2.7% decline in its first quarter’s adjusted EPS. Conn’s (CONN), which also sells consumer electronics and other merchandise categories, is scheduled to report its 1Q17 results on June 2. GameStop (GME) reported a 2.9% decline in the adjusted EPS in the comparable first quarter, primarily due to lower revenue.

Major executive change

Best Buy announced the departure of Sharon McCollam, its chief administrative and chief financial officer, effective at the company’s annual shareholder meeting on June 14, 2016. McCollam was instrumental in the implementation of the company’s turnaround efforts.

Corie Barry, the current chief strategic growth officer, will succeed McCollam as the company’s CFO. McCollam will remain with Best Buy in an advisory capacity until the end of fiscal 2017 on January 28, 2017, to ensure a seamless transition.

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

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