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Best Buy (BBY) Q1 Earnings Beat Estimates, Revenues Up Y/Y

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Best Buy Co., Inc. (BBY - Free Report) posted robust first-quarter fiscal 2022 results, with the top and the bottom line increasing year on year as well as surpassing the Zacks Consensus Estimate.

The quarter gained from sales growth across the Domestic and the International segments. Online sales remained strong in the domestic channel. Management highlighted that demand for technology products and services were high in the reported quarter. This was in turn fuelled by continued focus on home amid the pandemic. Moreover, results were supported by government stimulus programs and a strong housing environment. Additionally, the company’s Blue Shirts and Geek Squad agents delivered impressive performance.

Management raised its comparable sales outlook for fiscal 2022 along with providing its view for the second quarter. Going ahead, this Zacks Rank #3 (hold) company expects to keep gaining from consumers’ heightened dependency on technology.

Shares of this Richfield, MN-based company were up in the pre-market trading hours on May 27. Shares of the company have increased 15% in the past three months compared with the industry’s rise of 30.2%.

Q1 Details

Best Buy delivered adjusted earnings of $2.23 per share, which conformably surpassed the Zacks Consensus Estimate of $1.45. Moreover, the bottom line increased significantly from earnings of 67 cents reported in the year-ago quarter.

Enterprise revenues rose 35.9% year over year to $11,637 million and came ahead of the Zacks Consensus Estimate of $10,568 million. Enterprise comparable sales increased 37.2% against 5.3% decline recorded in the prior-year quarter. Moreover, revenues increased across the Domestic and the International segments.

We note that adjusted gross profit grew 37.7% to $2,709 million. Moreover, adjusted gross margin expanded 30 basis points (bps) to 23.3%. Markedly, adjusted operating income came in at $741 million, up from $250 million reported in the year-ago quarter. Again, adjusted operating margin increased 350 bps to 6.4%.

Segment Details

Domestic segment revenues increased 37% to $10,841 million. This year-over-year growth was mainly driven by comparable sales increase of 37.9%, partly offset by 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.

Meanwhile, the segment’s comparable online sales increased 7.6% to $3.6 billion, driven by higher average order values and traffic. As a percentage of overall Domestic revenues, online revenues contributed 33.2% compared with 42.2% in the last year.

We note that the segment’s gross margin expanded 30 bps year over year to 23.3% owing to better product margin rates, including reduced promotions and rate leverage from supply chain costs. The upsides were partly offset by higher installation and delivery costs.

Moving on to the International segment, revenues increased 23% to $796 million. This upside was backed by comparable sales growth of 27.8% and gains from favorable foreign currency exchange rates to the tune of 1000 bps. The segment’s gross margin expanded 140 bps to 23.7%, driven by improved product margin rates. 

 

Best Buy Co., Inc. Price, Consensus and EPS Surprise

 

Best Buy Co., Inc. Price, Consensus and EPS Surprise

Best Buy Co., Inc. price-consensus-eps-surprise-chart | Best Buy Co., Inc. Quote

 

Other Details

Best Buy ended the quarter with cash and cash equivalents of $4,278 million, long-term debt of $1,229 million and total equity of $4,158 million.

During the quarter, the company returned a total of $1.1 billion to shareholders through share repurchases of $927 million and dividends worth $175 million. Additionally, the company authorized a quarterly cash dividend of 70 cents per share, payable on Jul 8, 2021 to shareholders in record as on Jun 17, 2021.

For fiscal 2022, the company expects share repurchases of approximately $2.5 billion. Capital expenditures are expected in the range of $750-$850 million.

Guidance

Management highlighted that the fiscal year started out stronger than originally expected, and the growth momentum is seen to be continuing in the second quarter as well. Accordingly, the company raised its comparable sales growth view for the fiscal.

That said, for fiscal 2022, management expects enterprise comparable sales to increase in the range of 3-6%. The company had earlier projected comparable sales to range between a decline of 2% and growth of 1%. Additionally, adjusted gross margin is expected to remain flat with the fiscal 2021 rate of 22.4%.

For second-quarter fiscal 2022, the company expects enterprise comparable sales growth of nearly 17%. Moreover, adjusted gross margin is expected to remain flat with second-quarter fiscal 2021 rate of 22.9%.  

The company expects consumers shopping behavior to undergo changes during the second half of the year as they spend more time on activities such as outdoor dining and traveling. Since the impact of such aspects is difficult to predict, the company made no changes to its second half sales assumptions for the fiscal year.

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