TheChek News Flow

• Co reports holiday (9 weeks) comps +2.6% ex-80 bps benefit from mobile phone installment billing -- co raises adj. comps to near 1% (~in-line with estimates) from near flat.
• Co raises Q4 operating margin guidance to +75-90 bps YoY from +50 bps previously.
• Co sees 1H16 comps flat to negative low-single digits vs. ests just under +1%; sees non-GAAP operating margin down 30-50 bps YoY

"A compelling merchandise assortment, strong multi-channel execution, and a more favorable year-over-year macroeconomic environment drove these better-than-expected results. We were also able to capitalize on the product cycles in large screen televisions and mobile phones. These two categories were the primary drivers of our year-over-year revenue growth, more than offsetting significant weakness in tablets. Domestic online revenue of $1.49 billion increased 13.4% on a comparable basis due to (1) substantially improved inventory availability made possible by the chain-wide rollout of our ship-from-store capability in January 2014; (2) higher conversion rates; and (3) increased traffic driven by greater investment in online digital marketing...

As such, we are increasing our fourth quarter financial outlook, excluding the Five Star business in China, as follows: (1) Enterprise comparable sales growth, excluding the impact of installment billing, near 1% versus our previous outlook of near flat; and (2) non-GAAP operating income rate expansion of 75 to 90 basis points versus our previous outlook of 50 basis points. This operating income rate expansion, similar to our previous outlook, will come from (1) gross profit rate expansion, despite the pressure of growth in our lower-margin online channel; and (2) fixed SG&A sales growth leverage assuming near flat year-over-year SG&A dollars"

1H16 warning: "we do expect the impact of the external pressures he laid out [(1) deflationary pricing; (2) weak industry demand in NPD-reported Consumer Electronics categories; (3) declining demand for extended warranties; as well as (4) exchange rate volatility in our International businesses] to continue throughout FY16 and the impact of the incremental investments to begin in the first quarter. Additionally, we believe that the positive Domestic sales trends that we saw in mobile phones and home theater during the holiday period, in addition to the share gains we saw across other NPD-reported Consumer Electronics categories, were partially driven by the excitement around high-profile products and will not likely continue at holiday levels. As such, while we are excited about these investments and confident in our ability to execute against them, we are also appropriately cautious about the pressures. Therefore, we are currently expecting enterprise comparable sales in the first half of FY16, excluding the estimated impact of installment billing, to be flat to negative low-single digits (ests are near +1%) and the non-GAAP operating income rate to be down ~30 to 50 basis points -- reflecting a more modest sales environment and the impact of our incremental investments and SG&A inflation.