A month has gone by since the last earnings report for Best Buy (BBY Quick QuoteBBY - Free Report) . Shares have lost about 10.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Best Buy due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Best Buy Q3 Earnings Beat Estimates, Online Sales Surge

In spite of a challenging backdrop, Best Buy Co., Inc. registered stellar performance in third-quarter fiscal 2021. The top and the bottom lines surpassed the Zacks Consensus Estimate, resulting in the fifth straight quarter of sales and earnings beat. The metrics also improved year over year. This provider of technology products, services and solutions witnessed remarkable increase in Enterprise comparable sales. Notably, Domestic comparable online sales surged during the quarter.

Supply chain expertise, flexible store operating model and ability to shift quickly to digital aided the performance. The company witnessed increased demand for products that assist customers work, learn, cook, entertain and connect in their homes. The company benefited from stay-at-home trend and the shift in consumer spending away from areas like travel and dining out. Better-than-expected sales resulted in operating margin expansion and earnings growth.

Management stated that in spite of witnessing increased demand for the products and services at the start of the final quarter, it is still difficult to project whether these trends will persist, owing to the uncertainty related to the ongoing pandemic. The company also refrained from providing financial guidance.

Let’s Delve Deeper

Best Buy delivered adjusted earnings of $2.06 per share that surpassed the Zacks Consensus Estimate of $1.76, and increased substantially from $1.13 reported in the year-ago quarter. The bottom line gained from higher revenues.

Enterprise revenues rose 21% year over year to $11,853 million, and came ahead of the Zacks Consensus Estimate of $11,016.7 million. Enterprise comparable sales increased 23% compared with 1.7% growth recorded in the prior-year quarter. By category, comparable sales increased across Computing and Mobile Phones, Consumer Electronics, Appliances, Entertainment and Services.

We note that adjusted gross profit grew 20% to $2,831 million, however, adjusted gross margin contracted 30 basis points to 23.9%. Markedly, adjusted operating income came in at $728 million, up from $406 million reported in the year-ago quarter. Again, adjusted operating margin increased 190 basis points to 6.1%.

Segment Details

Domestic segment revenues increased 21% to $10,850 million. This year-over-year growth was mainly driven by comparable sales increase of 22.6%, partly offset by the loss of revenues from permanent store closures in the past year. The company registered comparable sales growth across most of its categories, with the largest drivers being computing, home theater and appliances. These were partly offset by a decline in mobile phone sales. In addition, comparable sales in services category grew 13%.

Meanwhile, comparable online sales soared 173.7% to $3.82 billion. As a percentage of overall Domestic revenues, online revenues rose to roughly 35.2% from 15.6% in the last year.

We note that the segment’s gross margin contracted 30 basis points year over year to 24% owing to higher supply chain costs because of the increased mix of online revenues and lower profit-sharing revenues from the company’s private-label and co-branded credit card arrangement. However, a favorable promotional environment partially offset these pressures.

International segment revenues jumped 25.4% to $1,003 million. This upside was backed by comparable sales growth of 27.3%, partly offset by the adverse impact of foreign currency exchange rates to the tune of 140 basis points. The segment’s adjusted gross margin expanded 10 basis points to 22.6%.

Other Financial Details

Best Buy ended the quarter with cash and cash equivalents of $5,136 million, long-term debt of $1,256 million and total equity of $4,086 million. During the quarter, the company returned a total of $142 million to shareholders via dividends. Management envisions capital expenditures of $725 million during fiscal 2021.

The company intends to reinitiate share repurchase in the fourth quarter. On a year-to-date basis, the company has returned a total of $488 million to shareholders through dividends of $426 million and share repurchases of $62 million. The company suspended share repurchases last March in order to conserve liquidity in light of the COVID-related uncertainties.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 9.59% due to these changes.

VGM Scores

Currently, Best Buy has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Best Buy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.