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Best Buy (BBY - Free Report) has been an early casualty of the recession, with analysts cutting estimates sharply in the past few months.
The current revenue consensus for this fiscal year (ends January) has slipped to $47 billion for a 9% annual decline.
And the driver of the Zacks Rank, EPS revisions, has seen a 21% hair-cut, since the company's last quarterly report in May, from $8.97 to $7.08.
This represents a 29% annual drop in earnings. And next year's EPS consensus forecast has also been slashed 21% from $10.58 to $8.35.
Management Drops the Hammer on Comparable Sales Forecast
Most of the downward EPS revisions came in the last week as the company announced it was trimming forecasts for its comparable sales and operating margins.
A challenging operating environment and softness in consumer demand are making things tough for Best Buy. Higher gasoline and food prices are squeezing disposable income, and consumers are compelled to curtail spending on discretionary items such as electronics.
Corie Barry, Best Buy CEO, said, "As high inflation has continued and consumer sentiment has deteriorated, customer demand within the consumer electronics industry has softened even further, leading to Q2 financial results below the expectations we shared in May."
Best Buy now envisions second-quarter fiscal 2023 comparable sales to decline about 13% against a 19.6% increase registered in the year-ago period. The current projection is significantly lower than what the company had projected in May.
It had earlier guided second-quarter comparable sales to be roughly in line with an 8% decline witnessed in the first quarter.
Management estimates revenues to be approximately 7.5% higher than the pre-pandemic second-quarter fiscal 2020. The electronics retailer foresees non-GAAP operating income rate to be around 3.7%. Additionally, it expects inventory at the end of the second quarter to be roughly flat year over year.
For fiscal 2023, Best Buy now expects comparable sales to decrease around 11% compared with its prior call of a 3-6% decline. It now anticipates non-GAAP operating income rate to be approximately 4%, down from the previously estimated range of 5.2% to 5.4%.
In order to navigate the tough macro-economic conditions and mitigate the impact of a weak sales environment, Best Buy is likely to undertake cost-containment actions to manage profitability. It remains committed to a quarterly dividend of 88 cents a share but has halted share repurchases.
Analyst Reactions
DA Davidson analyst Michael Baker lowered his price target on Best Buy to $88 from $110 and kept a Buy rating on the shares. The company negatively pre-announced Q2 and cut its guidance for the year amid weaker discretionary spending, but the analyst believes the market had already anticipated a miss given negative consumer electronics retailers from other retailers like Walmart (WMT - Free Report) and Target (TGT - Free Report) . Baker adds that the low expectations and de-risking of the estimates may help limit the damage to the stock.
Wells Fargo analyst Zachary Fadem lowered the firm's price target on Best Buy to $70 from $82 and kept an Equal Weight rating on the shares. While investors were bracing for this, Best Buy's second straight outlook reduction runs deep. Still, in the wake of Monday's Walmart reset, "the cross-contagion shouldn't be a total surprise," he concluded.
Bottom line on BBY: When Best Buy reports its Q2 later this month, we could see the trough in both performance and expectations. But there's no rush to buy that trough until we know more about the second half outlook for the economy and the electronics retail business. The Zacks Rank will let you know.
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Bear of the Day: Best Buy (BBY)
Best Buy (BBY - Free Report) has been an early casualty of the recession, with analysts cutting estimates sharply in the past few months.
The current revenue consensus for this fiscal year (ends January) has slipped to $47 billion for a 9% annual decline.
And the driver of the Zacks Rank, EPS revisions, has seen a 21% hair-cut, since the company's last quarterly report in May, from $8.97 to $7.08.
This represents a 29% annual drop in earnings. And next year's EPS consensus forecast has also been slashed 21% from $10.58 to $8.35.
Management Drops the Hammer on Comparable Sales Forecast
Most of the downward EPS revisions came in the last week as the company announced it was trimming forecasts for its comparable sales and operating margins.
A challenging operating environment and softness in consumer demand are making things tough for Best Buy. Higher gasoline and food prices are squeezing disposable income, and consumers are compelled to curtail spending on discretionary items such as electronics.
Corie Barry, Best Buy CEO, said, "As high inflation has continued and consumer sentiment has deteriorated, customer demand within the consumer electronics industry has softened even further, leading to Q2 financial results below the expectations we shared in May."
Best Buy now envisions second-quarter fiscal 2023 comparable sales to decline about 13% against a 19.6% increase registered in the year-ago period. The current projection is significantly lower than what the company had projected in May.
It had earlier guided second-quarter comparable sales to be roughly in line with an 8% decline witnessed in the first quarter.
Management estimates revenues to be approximately 7.5% higher than the pre-pandemic second-quarter fiscal 2020. The electronics retailer foresees non-GAAP operating income rate to be around 3.7%. Additionally, it expects inventory at the end of the second quarter to be roughly flat year over year.
For fiscal 2023, Best Buy now expects comparable sales to decrease around 11% compared with its prior call of a 3-6% decline. It now anticipates non-GAAP operating income rate to be approximately 4%, down from the previously estimated range of 5.2% to 5.4%.
In order to navigate the tough macro-economic conditions and mitigate the impact of a weak sales environment, Best Buy is likely to undertake cost-containment actions to manage profitability. It remains committed to a quarterly dividend of 88 cents a share but has halted share repurchases.
Analyst Reactions
DA Davidson analyst Michael Baker lowered his price target on Best Buy to $88 from $110 and kept a Buy rating on the shares. The company negatively pre-announced Q2 and cut its guidance for the year amid weaker discretionary spending, but the analyst believes the market had already anticipated a miss given negative consumer electronics retailers from other retailers like Walmart (WMT - Free Report) and Target (TGT - Free Report) . Baker adds that the low expectations and de-risking of the estimates may help limit the damage to the stock.
Wells Fargo analyst Zachary Fadem lowered the firm's price target on Best Buy to $70 from $82 and kept an Equal Weight rating on the shares. While investors were bracing for this, Best Buy's second straight outlook reduction runs deep. Still, in the wake of Monday's Walmart reset, "the cross-contagion shouldn't be a total surprise," he concluded.
Bottom line on BBY: When Best Buy reports its Q2 later this month, we could see the trough in both performance and expectations. But there's no rush to buy that trough until we know more about the second half outlook for the economy and the electronics retail business. The Zacks Rank will let you know.