Did Apple iPhone Sales Help Best Buy's First-Quarter Earnings?

NEW YORK (TheStreet) -- Did Apple  (AAPL) iPhone sales give Best Buy (BBY) a boost in the quarter? We'll know by Thursday morning when the electronics retailer reports its first-quarter earnings before the markets open.

Apple blew away earnings estimates when it reported its first-quarter earnings last month, fueled by a surge in iPhone sales. That number is likely to help Best Buy, which has been aggressively selling all things Apple even with its promotional pricing. Still Wall Street expects the Richfield, Minn.-based company to earn 20 cents a share, down 39% from a year ago, on revenue of $9.206 billion, down 2% from last year's quarter, according to Thomson Reuters.

Best Buy's same-store sales are expected to fall 0.8% for the quarter, according to Thomson Reuters. That compares to comp expectations at video game specialty retailer GameStop (GME) of 8.2%. GameStop also reports earnings on Thursday. On the other side, comps at RadioShack (RSH) are expected to drop 9.1% when the company reports earnings on June 9, 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 during first-quarter earnings in February that total cost savings had reached $765 million. As a result the company had decided to boost its overall cost cutting target to $1 billion, with additional cost savings to come from the "optimization" of returns, replacements and damages as well as logistics and supply chain.

That said, tough competition during the holiday season hurt Best Buy's same-store sales and margins in the first quarter as the company looked to compete on price with the likes of Amazon (AMZN) and Walmart (WMT). Due to the cost reductions, Best Buy was still able to report quarterly profit that exceeded analysts' expectations. Best Buy said that the biggest portion of first-quarter revenue came from computing and mobile phones categories.

Best Buy shares were trading up 1.6% to $25.06 on Wednesday afternoon, however the stock has fallen 37% this year.

Here's what Wall Street is saying about the company's first quarter.

Michael Lasser, UBS (Neutral; $29 PT)

We think BBY's performance recovered a bit in 1Q after a really tough holiday. We forecast a -1% dom. comp decline and -80 bps of domestic GM contraction, leading to $0.20 of EPS (vs. the consensus of $0.19). While it will take some time for the market to become re-engaged in BBY's story like it was last year, a stable quarter could help the narrative. Yet, recent history suggests that the company is likely to set a low bar for 2Q, particularly as it still contends with the impact from the changes to its mobile warranty and credit card agreement. In the last few periods, these factors & BBY's pricing investments have largely offset its Renew Blue savings. If it can produce greater balance between these forces, it would help to provide a stronger base for the stock.

Peter Keith, Piper Jaffray (Overweight; $34 PT)

After an extremely disappointing Q4, BBY's Q1 results are critically important to determine if gross margin pressure this past holiday was the result of an ultracompetitive pricing environment (a long-term issue) or promotional mis-execution by BBY (a short-term issue). In our view, BBY's GM pressure of -230 bps y/y in Q4 (the worst in at least 10 years) was due in part to company promos in a fading mobile phone cycle which essentially gave away profits. Improving its promo cadence could allow for GM upside. We also note that many initiatives and cost saves this year appear more GM focused vs. SG&A. Sales trends will likely remain lackluster for the foreseeable future in the absence of a meaningful product cycle. BBY will report Thursday morning and while we are modeled at Q1 EPS of $0.19 (below consensus of $0.20) we believe BBY could post GM upside on relatively low expectations.

Christopher Horvers, JPMorgan Chase (Overweight; $34 PT)

We are cautious on trends heading into earnings as reflected by our 1Q earnings estimate of $0.15 versus consensus of $0.20 (due to a negative 1.5% domestic comp and a 210-bp decline in domestic gross margin). That said, we remain positive on stock given long-term efficiency opportunities. Additionally, we believe the stock sets up well in the back half as the company laps a very difficult 4Q13 and as BBY improves its marketing, online effectiveness, and fulfillment options. Potential tailwinds for 2H include: improved ecommerce capabilities (e.g., CRM, website functionality, personalized marketing), continued cost costs (only half of the $765MM from 2013 had fully annualized to start the year), a return of momentum in BBY's mobile business now that they offer installment plan options, and ship from store gross margin benefits related to end of life inventory and returns, replacements, and damages-all against a 240-bp decline in domestic gross margin in 4Q13.

Mike Baker, Deutsche Bank (Buy; $36 PT)

BBY has been able to beat estimates in the non-holiday quarters as pricing pressure is less of a factor, meaning cost savings are easier to bring to the bottom line. We think that will occur again in 1Q, setting up for a beat and potentially positive stock reaction.

--Written by Laurie Kulikowski in New York.

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