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Best Buy Profits Climb 55% As They Learn How To Compete Against Amazon

Best Buy the No. 1 U.S. electronics retailer, has reported a 55% jump in profits, despite sales taking a hit due to the recall of a Samsung washing machine and the Note 7.

The big retail who learnt how to fight Amazon, reported a 55.2 percent increase in net earnings, to $194 million, for the third fiscal quarter ended Oct. 29, but warned of a $200 million revenue hit in Q4 due to Samsung’s Note7 and washer recalls.

Earnings benefitted from cost cutting and improved operational efficiencies and to a lesser extent from sales.

Total revenues rose 1.4 percent to $8.9 billion, though U.S. comp sales were up 1.8 percent — the sixth increase in the past nine quarters — capped by the closures of 14 flagship stores and 23 Best Buy Mobile showrooms over the prior 12 months.

But e-commerce remained a big winner for the CE retailer, with domestic online comps rising 24.1 percent due to increased traffic, higher average order values and higher conversion rates, the company said. The sales pop pushed up digital’s share of total U.S. revenue to 10.8 percent, from 8.8 percent last year.

A big user of the Webcollage content engine the Company said that information marketing and better instore information was critical in taking it up to Amazon.

On the merchandising front, Best Buy enjoyed strength in home theatre, mobile phones, wearables, and connected home, which was partially offset by comp declines in gaming. It also reported improved margin rates in computing and home theatre.

Unlike Harvey Norman Best Buy do break down their category sales.

Broken out by category, CE comps rose 4.9 percent; appliance sales increased 3 percent; comps for computing and mobile phones edged up 1.6 percent; services comps declined 1.8 percent; and entertainment comps, which include movies, music and gaming, fell 9.4 percent.

Computing and mobile phones continue to represent Best Buy’s largest product category with 49 percent of the revenue mix, followed by CE at 31 percent; appliances at 9 percent; entertainment at 6 percent; and services at 5 percent, the company said.

In a statement, Best Buy chairman/CEO Hubert Joly highlighted the top- and bottom-line growth, and extolled “the continued product innovation we are seeing, the role we play for customers, the growth opportunities in front of us, the quality of our execution, and the strength of our financial performance.”

The earnings results far exceeded analyst estimates, sending Best Buy shares up nearly 9 percent in pre-market trading, approaching the stock’s 52-week high.

Looking ahead, chief financial officer Corie Barry lowered the company’s fourth-quarter U.S. revenue forecast by $200 million, to $13.4 billion-$13.6 billion, reflecting the global recalls of Samsung’s Note7 phablet and 2.8 million top-load washers. Earnings will not be affected.

“We have updated our original expectations to incorporate the impact of recent product recalls and the fact that certain products will simply not be available for sale during our fourth quarter,” he said.

Analysts on average had expected Best Buy to report sales of $13.7 billion in the current quarter, which includes January, according to Thomson Reuters I/B/E/S.

Best Buy also sold Samsung’s Galaxy Note 7 phones, whose production ended after they showed a tendency to catch fire.

“The Samsung issues will be somewhat of a drag on Q4,” Moody’s analyst Charles O’Shea said.

“However … Best Buy will be able to overcome these and have a strong holiday and overall fourth quarter, driven in large part by continuing online acceleration.”