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Best Buy's (BBY) Q4 Earnings Beat, Comparable Sales Fall 2.3%

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Best Buy Co., Inc. (BBY - Free Report) posted mixed results for fourth-quarter fiscal 2022 results, wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. Both sales and earnings decreased year over year. Sales for the fiscal fourth quarter were affected by higher constrained inventory, including certain high-demand holiday items as well as lower store hours in January due to the omicron-induced staffing headwinds.

Over the past six months, this presently Zacks Rank #3 (Hold) stock has increased 2.9% compared with the industry’s rise of 6.9%.

Q4 Details

Best Buy’s adjusted earnings of $2.73 per share surpassed the Zacks Consensus Estimate by a penny. The bottom line decreased 21.6% from the year-ago period’s reading.

Enterprise revenues dipped 3.4% year over year to $16,365 million and missed the Zacks Consensus Estimate of $16,578 million. Enterprise comparable sales dipped 2.3% versus 12.6% growth seen in the year-ago quarter.

Gross profit declined 6.5% to $3,313 million, while gross margin contracted 70 basis points to 20.2%. Operating income came in at $803 million, down 22.3% from the year-ago quarter’s figure. Again, adjusted operating margin shrank 180 bps to 5.1%.

We note that adjusted SG&A expenses rose 0.2% to $2,108 million, while as a percentage of revenues, the same was flat at 17.7%.

Segment Details

Domestic segment revenues dipped 2.6% to $14,993 million. This year-over-year decline was mainly driven by a comparable sales decrease of 2.1% and the loss of revenues from permanent store closures in the prior year. The key drivers of comparable sales increase on a weighted basis were appliances, virtual reality, home theater and headphones, which were more than offset by decreases in gaming, mobile phones, tablets and services.

Domestic online revenues of $5.91 billion declined 11.2% year over year on a comparable basis. As a percentage of total Domestic revenues, online revenues decreased to 39.4% compared with 43.2% last year.

Segment adjusted gross profit rate decreased 70 basis points to 20% due to lower services margin rates with pressures related to Best Buy’s Totaltech membership offering. This was partly offset by increased profit-sharing revenues from its private label and co-branded credit card arrangement.

Moving on to the International segment, revenues fell 10.7% to $1,372 million, mainly due to the closure of Mexico in fiscal 2022 and a comparable sales drop of 3.8% in Canada. However, favorable foreign currency exchange rates benefited the metric to the tune of 150 basis points. The segment’s adjusted gross profit rate expanded 210 basis points to 22.9%, buoyed by sales mixing out of Mexico, which had a weaker gross profit rate than Canada.

Other Details

Best Buy ended the quarter with cash and cash equivalents of $2,936 million, long-term debt of $1,216 million and a total equity of $3,020 million.

During the quarter, the company returned about $1.94 billion to its shareholders via share repurchases of $1.77 billion and dividends worth $166 million. For fiscal 2022, BBY returned a total of $4.2 billion via share repurchases of $3.5 billion and dividends of $688 million.

Best Buy’s board approved a 26% increase in its regular quarterly dividend, taking the total to 88 cents per share. The dividend will be payable Apr 14, 2022, to its shareholders of record as of Mar 24, 2022. Additionally, the board approved a new $5-billion share buyback authorization. This replaces the current authorization dated February 2021 with $1.6 billion of repurchases outstanding at the end of fiscal 2022.

For fiscal 2023, management anticipates share buybacks of $1.5 billion.

Guidance

Management envisions fiscal 2023 enterprise revenues between $49.3 billion and $50.8 billion, indicating a decline from the year-ago reported figure of $51.8 billion. Best Buy anticipated an enterprise comparable sales decline of 1-4% against 10.4% increase seen in fiscal 2022.

Best Buy expects adjusted operating income rate of 5.4% for fiscal 2023. Adjusted earnings per share are anticipated in the band of $8.85-$9.15, indicating a decline from $10.01 earned last fiscal.

For fiscal 2025, management projects enterprise revenues of $53.5-$56.5 billion. While adjusted operating income is forecast in the range of $3.4-$3.8 billion, adjusted operating margin is expected to be 6.3-6.8%.

3 Hot Stocks to Consider

Here are three better-ranked stocks, namely Capri Holdings (CPRI - Free Report) , DICK'S Sporting Goods (DKS - Free Report) and Dollar Tree (DLTR - Free Report) .

Capri Holdings, a global fashion luxury group, currently flaunts a Zacks Rank #1 (Strong Buy). CPRI’s bottom line outperformed the Zacks Consensus Estimate by a wide margin in all the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Capri Holdings’ current financial-year sales and EPS suggests growth of 37.1% and 215.8%, respectively, from the corresponding year-ago period’s reported figures. CPRI has an expected EPS growth rate of 30.9% for three-five years.

DICK'S Sporting Goods, which operates as a sporting goods retailer, has a Zacks Rank #2 (Buy) at present. DKS has a trailing four-quarter earnings surprise of 104.2%, on average.

The Zacks Consensus Estimate for DICK'S Sporting Goods’ current financial-year sales and EPS suggests growth of 27.6% and 151.6% each from the respective year-ago period’s reported numbers. DKS has an expected EPS growth rate of 11.7% for three-five years.

Dollar Tree, the operator of discount variety retail stores, holds a Zacks Rank of 2 at present. DLTR has a trailing four-quarter earnings surprise of 8.8%, on average. DLTR has an expected EPS growth rate of 12.2% for three to five years.

The Zacks Consensus Estimate for DLTR’s current financial-year sales suggests growth of 3.4% from the year-ago period’s reported figure.