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Why Is Best Buy (BBY) Down 7.1% Since its Last Earnings Report?
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A month has gone by since the last earnings report for Best Buy Co., Inc. (BBY - Free Report) . Shares have lost about 7.1% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is BBY 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 catalysts.
Best Buy’s Q4 Earnings Beat, Guides for FY19
Best Buy Company, Inc. returned to positive earnings trend in fourth-quarter fiscal 2018 after reporting a miss in the preceding quarter. With this the company has delivered positive earnings surprise in 20 of 21 quarters. Moreover, the company surpassed sales estimates in the fourth quarter, which marked its third beat in the last four quarters.
The company’s solid results followed its announcement of closing 257 remaining Best Buy Mobile stand-alone stores in the U.S. The company expects to close down these stores effective May 31.
The company posted adjusted earnings per share of $2.42 from continuing operations, surpassing the Zacks Consensus Estimate of $2.05. Moreover, the bottom line increased 25% year over year, which came as a big boost to investors.
The top line increased nearly 14% year over year to $15,363 million and beat the consensus mark of $14,570 million. Enterprise comparable-store sales (comps) were up 9% against a decline of 0.7% reported in the prior-year period.
Comps growth mainly came on the back of smooth execution of the Best Buy 2020 Strategy, alongside improved product availability, rising consumer confidence and a favorable macro environment, a strong gaming category, and a constructive competitive backdrop due to the exit of some of its peers, who filed for bankruptcy.
Adjusted operating profit came in at $982 million, up 10.3% year over year. However, adjusted operating margin contracted 20 basis points to 6.4% due to an operating margin decline in the Domestic segment, which contributes nearly 90% of the company’s profitability.
Segment Details
Domestic segment revenues gained 13.4% year over year to $13,987 million, primarily owing to a 9% increase in comparable sales and contribution from the additional 53rd week. This was partially offset by a revenue loss from the shutdown of 18 large-format stores. Comps gained from growth across most categories, with particular strength in mobile phones, gaming, appliances, smart home, wearables and home theater.
Domestic online sales came in at $2.8 billion, and grew 17.9% on a comparable basis. This upside was driven by an increase in average order value and conversion rates.
The segment’s adjusted gross profit rose 13.2% to $3,113 million, while adjusted gross margin came in at 22.3%, flat year over year. Adjusted operating income jumped 10.9% to $897 million. However, adjusted operating income margin contracted 20 bps to 6.4%. The lower operating profit rate can be attributed to higher SG&A expenses that stemmed from a rise in incentive compensation expense at stores and for corporate employees due to strength witnessed throughout the year. Further, ongoing investments in business growth also led to a rise in SG&A expenses.
International segment revenues climbed 20.3% to $1,376 million, primarily on the back of a 9.9% rise in comparable sales growth both in Canada and Mexico, a favorable foreign currency impact of 580 bps and nearly $45 million contribution from the additional week.
The segment’s adjusted gross profit grew 9.6% to $308 million in the reported quarter and adjusted gross margin contracted 220 bps to 22.4%. Adjusted operating profit came in at $85 million, up 4.9% from $81 million reported in the year-ago quarter. Adjusted operating income margin came in at 6.2%, down 90 bps.
Other Financial Details
Best Buy ended fiscal 2018 with cash and cash equivalents of $1,101 million, long-term debt of $809 million and total equity of $3,612 million. In the fiscal fourth quarter, the company returned about $965 million to shareholders via buybacks of $866 million and dividends of $99 million.
Concurrent to the earnings release, the company raised its quarterly dividend rate by 32% to 45 cents per share. It also approved a share repurchase plan of at least $1.5 billion for fiscal 2019. This represents an updated two-year buyback plan of $3.5 billion compared to the initial $3 billion two-year plan announced at the start of fiscal 2018. In fiscal 2018, the company returned a total of $2.4 billion to shareholders through share repurchases of $2 billion and dividends of $409 million. The company expects to incur capital expenditures of $850-$900 million during fiscal 2019.
Guidance
Following the solid close to fiscal 2018, Best Buy provided an encouraging view for the first quarter and fiscal 2019. For the fiscal year, management forecasts Enterprise revenues of $41-42 billion with comps growth of nearly flat to up 2%. The company anticipates adjusted operating income rate of about 4.5%, flat with the fiscal 2018 level. Meanwhile, the company expects an effective tax rate of nearly 25% and earnings per share in the range of $4.80-$5.00, reflecting growth of about 9-13% from fiscal 2018.
For the first quarter, management anticipates Enterprise revenues between $8.65 billion and $8.75 billion, and a comparable sales increase of 1.5-2.5%. Management also projects adjusted earnings in the band of 68-73 cents a share.
Also, in the fiscal first quarter, the company expects domestic comparable sales to rise in the range of 1.5-2.5%, while international comparable sales are estimated in the band of flat to up 3%.
Further, the company updated its fiscal 2021 adjusted earnings per share target to $5.50-$5.75 from a range of $4.35-$5.00, reflecting the benefits of the new tax reform.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower. While looking back an additional 30 days, we can see even more upward momentum. There has been only one move up in the last two months.
At this time, BBY has a great Growth Score of A, though it is lagging a bit on the momentum 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 20% 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.
Based on our scores, the stock is equally suitable for value and growth investors while momentum investors may want to look elsewhere.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, BBY has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Best Buy (BBY) Down 7.1% Since its Last Earnings Report?
A month has gone by since the last earnings report for Best Buy Co., Inc. (BBY - Free Report) . Shares have lost about 7.1% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is BBY 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 catalysts.
Best Buy’s Q4 Earnings Beat, Guides for FY19
Best Buy Company, Inc. returned to positive earnings trend in fourth-quarter fiscal 2018 after reporting a miss in the preceding quarter. With this the company has delivered positive earnings surprise in 20 of 21 quarters. Moreover, the company surpassed sales estimates in the fourth quarter, which marked its third beat in the last four quarters.
The company’s solid results followed its announcement of closing 257 remaining Best Buy Mobile stand-alone stores in the U.S. The company expects to close down these stores effective May 31.
The company posted adjusted earnings per share of $2.42 from continuing operations, surpassing the Zacks Consensus Estimate of $2.05. Moreover, the bottom line increased 25% year over year, which came as a big boost to investors.
The top line increased nearly 14% year over year to $15,363 million and beat the consensus mark of $14,570 million. Enterprise comparable-store sales (comps) were up 9% against a decline of 0.7% reported in the prior-year period.
Comps growth mainly came on the back of smooth execution of the Best Buy 2020 Strategy, alongside improved product availability, rising consumer confidence and a favorable macro environment, a strong gaming category, and a constructive competitive backdrop due to the exit of some of its peers, who filed for bankruptcy.
Adjusted operating profit came in at $982 million, up 10.3% year over year. However, adjusted operating margin contracted 20 basis points to 6.4% due to an operating margin decline in the Domestic segment, which contributes nearly 90% of the company’s profitability.
Segment Details
Domestic segment revenues gained 13.4% year over year to $13,987 million, primarily owing to a 9% increase in comparable sales and contribution from the additional 53rd week. This was partially offset by a revenue loss from the shutdown of 18 large-format stores. Comps gained from growth across most categories, with particular strength in mobile phones, gaming, appliances, smart home, wearables and home theater.
Domestic online sales came in at $2.8 billion, and grew 17.9% on a comparable basis. This upside was driven by an increase in average order value and conversion rates.
The segment’s adjusted gross profit rose 13.2% to $3,113 million, while adjusted gross margin came in at 22.3%, flat year over year. Adjusted operating income jumped 10.9% to $897 million. However, adjusted operating income margin contracted 20 bps to 6.4%. The lower operating profit rate can be attributed to higher SG&A expenses that stemmed from a rise in incentive compensation expense at stores and for corporate employees due to strength witnessed throughout the year. Further, ongoing investments in business growth also led to a rise in SG&A expenses.
International segment revenues climbed 20.3% to $1,376 million, primarily on the back of a 9.9% rise in comparable sales growth both in Canada and Mexico, a favorable foreign currency impact of 580 bps and nearly $45 million contribution from the additional week.
The segment’s adjusted gross profit grew 9.6% to $308 million in the reported quarter and adjusted gross margin contracted 220 bps to 22.4%. Adjusted operating profit came in at $85 million, up 4.9% from $81 million reported in the year-ago quarter. Adjusted operating income margin came in at 6.2%, down 90 bps.
Other Financial Details
Best Buy ended fiscal 2018 with cash and cash equivalents of $1,101 million, long-term debt of $809 million and total equity of $3,612 million. In the fiscal fourth quarter, the company returned about $965 million to shareholders via buybacks of $866 million and dividends of $99 million.
Concurrent to the earnings release, the company raised its quarterly dividend rate by 32% to 45 cents per share. It also approved a share repurchase plan of at least $1.5 billion for fiscal 2019. This represents an updated two-year buyback plan of $3.5 billion compared to the initial $3 billion two-year plan announced at the start of fiscal 2018. In fiscal 2018, the company returned a total of $2.4 billion to shareholders through share repurchases of $2 billion and dividends of $409 million. The company expects to incur capital expenditures of $850-$900 million during fiscal 2019.
Guidance
Following the solid close to fiscal 2018, Best Buy provided an encouraging view for the first quarter and fiscal 2019. For the fiscal year, management forecasts Enterprise revenues of $41-42 billion with comps growth of nearly flat to up 2%. The company anticipates adjusted operating income rate of about 4.5%, flat with the fiscal 2018 level. Meanwhile, the company expects an effective tax rate of nearly 25% and earnings per share in the range of $4.80-$5.00, reflecting growth of about 9-13% from fiscal 2018.
For the first quarter, management anticipates Enterprise revenues between $8.65 billion and $8.75 billion, and a comparable sales increase of 1.5-2.5%. Management also projects adjusted earnings in the band of 68-73 cents a share.
Also, in the fiscal first quarter, the company expects domestic comparable sales to rise in the range of 1.5-2.5%, while international comparable sales are estimated in the band of flat to up 3%.
Further, the company updated its fiscal 2021 adjusted earnings per share target to $5.50-$5.75 from a range of $4.35-$5.00, reflecting the benefits of the new tax reform.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower. While looking back an additional 30 days, we can see even more upward momentum. There has been only one move up in the last two months.
Best Buy Co., Inc. Price and Consensus
Best Buy Co., Inc. Price and Consensus | Best Buy Co., Inc. Quote
VGM Scores
At this time, BBY has a great Growth Score of A, though it is lagging a bit on the momentum 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 20% 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.
Based on our scores, the stock is equally suitable for value and growth investors while momentum investors may want to look elsewhere.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, BBY has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.