Is That a Light at the End of the Tunnel for Best Buy Co., Inc. (BBY)?

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Surprise, surprise. After the dust settled, Best Buy Co., Inc. (NYSE:BBY) accomplished what many assumed was impossible: It beat earnings estimates, and handily. For a company that’s been through what Best Buy’s been through the past year — a fight over ownership with founder Richard Schulze, a new CEO last fall, and weak consumer demand for electronics — the better-than-expected net income from operations results should have had investors cheering. But with Best Buy shares down 5%, clearly there’s more to this picture.

The bright spots
When Best Buy Co., Inc. (NYSE:BBY) CEO Hubert Joly committed to matching online prices with the likes of, Inc. (NASDAQ:AMZN) and Wal-Mart Stores, Inc. (NYSE:WMT), he stepped into the ring with the big boys. Wal-Mart grew its online sales more than 30% last quarter in a concerted effort to drive this area of its business. And of course, Amazon remains the top online retailer in the world, selling over $13 billion in online products alone last quarter.

Best Buy Co., Inc. (NYSE:BBY)To Best Buy Co., Inc. (NYSE:BBY)’s credit, domestic online sales grew 16% compared to fiscal first quarter 2013. That pales in comparison to, Inc. (NASDAQ:AMZN) and Wal-Mart Stores, Inc. (NYSE:WMT), but is certainly a step in the right direction. While revenues dropped to $7.98 billion – a decline of 9.6% from last year – there are a couple of caveats worth noting. One, the first quarter of last year had an additional week, which added an estimated $660 million to the top line. If you remove the extra week, revenue declined a more tolerable 2.2%. Also, after shuttering 49 large-format stores, it stands to reason that gross revenues would be squeezed.

Similar to Best Buy Co., Inc. (NYSE:BBY)’s drop in revenue, its 1.1% same-store sales decline also comes with an asterisk. Of the drop in same-store sales, Best Buy estimates 0.80% of the 1.1% is attributable to the Super Bowl — historically a good week for electronics sales — landing in its fourth quarter instead of in the first quarter as it did last year. A stretch? Maybe, but these seem like legitimate arguments rather than the usual CEO-speak after a tough quarter.

Joly’s continued cost-cutting saved Best Buy Co., Inc. (NYSE:BBY) another $175 million in fiscal first quarter, on top of $150 million in expenses cut last quarter. The agreement reached with Samsung to put up its “Experience Shops” inside Best Buy stores could prove profitable as the mobile computing king continues to generate ridiculously solid sales results.

It has been confirmed that it is getting out of its European deal with Carphone Warehouse, and this a good move for Best Buy Co., Inc. (NYSE:BBY) as it continues cost-cutting initiatives and focuses on its core business. Best Buy will receive about $775 million, more than 80% in cash and the balance in Carphone Warehouse stock, less $45 million to settle outstanding obligations.

The not-so-bright spots
Matching the prices of online retailers like, Inc. (NASDAQ:AMZN) as well as Wal-Mart Stores, Inc. (NYSE:WMT)’s website, and making those price cuts permanent, is hurting margins. This year’s fiscal first-quarter gross profit margins of 23.1% is down from the year-ago period’s 24.9%, and that’s likely to get worse, not better.

As Best Buy Co., Inc. (NYSE:BBY)’s EVP, CAO, and CFO Sharon McCollam put it, “We believe that the ongoing investment in price competitiveness that contributed to our gross profit and EPS declines in the first quarter will continue into the second quarter. Additionally, disruptions caused by the physical deployment of the Samsung Experience Shops and the optimization of our retail floor space are expected to have operational impacts during the second quarter.”

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