NEW YORK (TheStreet) - Best Buy (BBY - Get Report) shares were surging 8% to $27.88 in pre-market trading after the electronics retailer reported better-than-expected fourth-quarter profit fueled by its cost reduction initiative, announced in 2012.
On a GAAP basis, net earnings attributable to Best Buy came in at $293 million, or 83 cents a share, compared to a loss of $409 million, or $1.21 a share, in the year earlier quarter. GAAP earnings from continuing operations were 88 cents a share, compared to a loss of $1.36 a share last year, the company said Thursday morning.
On a non-GAAP basis, operating income from continuing operations came in at $1.24 a share versus $1.47 a share in the year-earlier quarter. Analysts were calling for earnings of $1.01 a share, according to Thomson Reuters.
Best Buy had laid out a plan at its 2012 Investor Day to realize roughly $725 million in cost savings across its roughly 1,000 stores in North America. The company said Thursday that total cost savings to date were roughly $765 million and boosted its overall cost cutting target to $1 billion.It expects the additional cost savings to come from the "optimization" of returns, replacements and damages as well as logistics and supply chain. That said, Best Buy is facing an intense competitive environment, pressured by the likes of Amazon (AMZN) and Wal-Mart (WMT). Best Buy's revenue of $14.47 billion fell 3% compared to the year earlier. Quarterly revenue was softer than analysts' expectations of $14.66 billion. Comparable store sales fell 1.2% in the quarter; domestic store sales fell 1.2%, while online sales jumped 25.8%. Best Buy's gross profit took a hit competing against the likes of Amazon and Wal-Mart. As a percentage of revenue, gross profit slipped to 20.3% in the quarter compared to the year-earlier period. Best Buy had warned about lowered sales and margin due for the quarter when it released its holiday sales figures last month. "As we said in our holiday sales release, the fourth quarter was an environment of declining retail traffic, intense promotion, fewer holiday shopping days and severe weather. In the face of these unusual circumstances, our strategy to be price competitive and provide an improved customer experience resulted in market share gains in a weaker-than-expected consumer electronics market," Hubert Joly, Best Buy president and CEO, said in the earnings statement on Thursday. CFO Sharon McCollam noted in the release that: "we are assuming that the industry declines in the consumer electronics category that we saw in the fourth quarter will continue. As a result, it is reasonable to expect that total company revenue and comparable store sales will remain slightly negative - similar to Q4 FY14 - in the first half of the year." Best Buy said that while the biggest portion of revenue in the quarter came from computing and mobile phones (the company moved e-readers at the beginning of last year into this category to account for the "continued convergence" of e-readers and tablets), domestic comps for its appliances division had the biggest positive increase of 17.1%. Computing and mobile phones comparable sales rose just 2.9% year over year, despite Best Buy's strong promotional activity during the holiday season to get consumers to buy their smartphones with through the company. --Written by Laurie Kulikowski in New York. Follow @LKulikowski