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Best Buy (BBY) Down 12.4% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Best Buy (BBY - Free Report) . Shares have lost about 12.4% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Best Buy's Sales & Earnings Beat Estimates in Q2

Best Buy posted robust second-quarter fiscal 2022 results with the top and the bottom line increasing year over year as well as surpassing the Zacks Consensus Estimate. The quarter gained from sales growth across the Domestic and the International segments.

Management raised enterprise comparable sales growth view for fiscal 2022 and also issued guidance for the third quarter. Going forward, Best Buy expects to keep gaining from consumers’ heightened dependency on technology.

Q2 Details

Best Buy delivered adjusted earnings of $2.98 per share, which surpassed the Zacks Consensus Estimate of $1.91. Moreover, the bottom line increased nearly 74% from $1.71 earned in the year-ago quarter.

Enterprise revenues rose 19.6% year over year to $11,849 million and came ahead of the Zacks Consensus Estimate of $11,601 million. Enterprise comparable sales increased 19.6% versus 5.8% growth seen in the year-ago quarter.

Gross profit grew 23.8% to $2,810 million with gross margin expansion of 80 basis points (bps) to 23.7%. Adjusted operating income came in at $821 million, up from $588 million reported in the year-ago quarter. Again, adjusted operating margin expanded 100 bps to 6.9%.

Segment Details

Domestic segment revenues jumped 20.6% to $11,011 million. This year-over-year growth was mainly driven by comparable sales increase of 20.8%, partly mitigated with loss of revenues from permanent store closures in the prior year. The company registered comparable sales growth in almost all its categories with the key drivers being computing, mobile phones, home theater, appliances and services.

The segment’s comparable online sales declined 28.1% to $3.5 billion. As a percentage of overall Domestic revenues, online revenues contributed 31.7% compared with 53.1% of last year.

Segmental gross margin expanded 90 bps year over year to 23.7% owing to better product margin rates and rate leverage from supply-chain expenses as well as increased profit-sharing sales from its private label and co-branded credit card arrangement.

Moving on to the International segment, revenues grew 7.2% to $838 million. This upside was backed by comparable sales growth of 5% and significant gains of 1,070 bps from favorable foreign currency exchange rates. Growth was somewhat offset by lower revenues in Mexico. The segment’s gross margin expanded 50 bps to 24.3% in the reported quarter.

Other Details

Best Buy ended the quarter with cash and cash equivalents of $4,340 million, long-term debt of $1,243 million and a total equity of $4,335 million.

During the quarter, the company returned about $571 million to its shareholders via share repurchases of $396 million and dividends worth $175 million. Additionally, the company’s board authorized a quarterly cash dividend of 70 cents per share, payable Oct 5, 2021 to its shareholders of record on Sep 14, 2021.

For fiscal 2022, the company expects share repurchases of above $2.5 billion.

Guidance

For fiscal 2022, management now projects enterprise comparable sales to increase 9-11% compared with the previous outlook of 3-6% growth. Enterprise revenues are forecast in the bracket of $51-$52 billion. Adjusted gross margin is expected to slightly improve year over year. Earlier, the metric was expected to be flat with the fiscal 2021 rate of 22.4%. Adjusted SG&A growth is anticipated at nearly 9% compared with the past projection of 6-7% rise.

For the second half, comparable sales are likely to come in the band of flat to down 3% year over year compared with a high single-digit decrease anticipated earlier.

For third-quarter fiscal 2022, the company expects enterprise comparable sales to decrease 1-3%. Enterprise revenues are predicted in the band of $11.4-$11.6 billion. Adjusted gross margin is expected to fall 30 bps year over year. Adjusted SG&A dollars are likely to be flat year over year.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 35.21% due to these changes.

VGM Scores

Currently, Best Buy has a great 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Best Buy has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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