Best Buy???s Profit Plunges

Shares of Best Buy Company Inc. (BBY - Analyst Report) dropped 6.6% to $12.85 in the pre-market trading hours today as investors turned jittery following the lower-than-expected third-quarter 2013 results.

Earnings of this consumer electronic products retailer came in at 3 cents a share that dropped drastically by 94% from 47 cents earned in the year-ago quarter, and also missed the Zacks Consensus Estimate of 12 cents by miles. This slide challenges Hubert Joly, the newly appointed Chief Executive Officer, with the task of completely revamping the operations.

Including one-time items and discontinued operations, the company reported quarterly loss of 3 cents a share that fell significantly from 42 cents delivered in the prior-year quarter.

Let’s Dig Deep

Richfield, Minnesota-based Best Buy’s total revenue dropped 3.5% year-over-year to $10,753 million but came ahead of the Zacks Consensus Estimate of $10,730 million. Comparable-store sales fell 4.3% compared with a decline of 0.7% in the prior-year period.

Gross profit slid 9.4% to $2,586 million during the quarter, whereas gross margin contracted 160 basis points to 24%. Adjusted operating income plunged 87% to $48 million, whereas operating margin plummeted 300 basis points to 0.4%.

Domestic segment revenue decreased 4.7% to $7,673 million due to fall in comparable-store sales and closing of stores. Comparable-store sales fell 4% during the quarter, reflecting sales declines in gaming, notebooks, digital imaging and televisions, partially mitigated by growth registered across tablets, mobile phones, appliances and eReaders. Domestic segment online revenue jumped over 10% to $431 million.

The domestic segment’s gross profit slipped 9% to $1,855 million during the quarter, while gross margin came in at 24.2%, down 100 basis points.

International segment revenue came in at $3,080 million marginally down from $3,090 million in the year-ago quarter. Moreover, comparable-store sales dropped 5.2%, reflecting comps declines across China and Canada, partially offset by growth witnessed in Europe.

The International segment’s gross profit dipped 11% to $731 million during the quarter, while gross margin shrunk 280 basis points to 23.7%.

Other Financial Details

Best Buy’s cash position has plunged 85.1% year-over-year to $309 million. Total long-term debt was $1,702 million and shareholders’ equity was $4,128 million at the end of the quarter.

The company paid a quarterly dividend of 17 cents a share, totaling $57 million, on October 2. Management now projects free cash flow generation of $850 million to $1.05 billion for fiscal 2013 down from a range of $1.25 billion to $1.5 billion forecasted earlier.

Currently, we have a long-term “Underperform” recommendation on the stock. Moreover, Best Buy, which faces competition from Wal-Mart Stores Inc. (WMT - Analyst Report) and Amazon.com Inc. (AMZN - Analyst Report), holds a Zacks #4 Rank (short-term Sell).