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Best Buy's (BBY) Q1 Earnings Miss, Comparable Sales Fall 8%

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Best Buy Co., Inc. (BBY - Free Report) posted mixed results for first-quarter fiscal 2023 results, wherein the top line beat the Zacks Consensus Estimate but the bottom line missed the same. Both sales and earnings decreased year over year.

Over the past six months, this presently Zacks Rank #3 (Hold) stock has increased 1.2% compared with the industry’s rise of 5.2%.

Q1 Details

Best Buy’s adjusted earnings of $1.57 per share lagged the Zacks Consensus Estimate of $1.60. The bottom line decreased 29.6% from the year-ago period’s reading.

Best Buy Co., Inc. Price and EPS Surprise

Best Buy Co., Inc. Price and EPS Surprise

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

Enterprise revenues dipped 3.4% year over year to $10,647 million but surpassed the Zacks Consensus Estimate of $10,432 million. Enterprise comparable sales dropped 8% against 37.2% growth seen in the year-ago quarter.

Gross profit declined 13.3% to $2,353 million, while gross margin contracted 120 basis points to 22.1%. Operating income came in at $462 million, down significantly from $769 million recorded in the year-ago quarter. Again, adjusted operating margin shrank 230 bps to 4.3%.

We note that adjusted SG&A expenses rose 0.2% to $1,890 million, while as a percentage of revenues, the same dipped 4.9% to 17.8%.

Segment Details

Domestic segment revenues fell 8.7% to $9,894 million. This year-over-year decline was mainly induced by a comparable sales decrease of 8.5%. From a merchandising perspective, comparable sales decreased in almost all categories.

Domestic online revenues of $3.06 billion declined 14.9% year over year on a comparable basis. As a percentage of total Domestic revenues, online revenues were 30.9% compared with 33.2% last year.

Segment adjusted gross profit rate decreased 140 basis points to 21.9% due to lower services margin rates with pressures related to Best Buy’s Totaltech membership offering, reduced product margin rates and increased supply-chain costs. 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 5.4% to $753 million, mainly due to the exit of operations in Mexico and a comparable sales decline of 1.4% in Canada. The segment’s adjusted gross profit rate expanded 130 basis points to 24.3%, boosted by a higher percentage of revenues from the increased margin services category in Canada.

Other Details

Best Buy ended the quarter with cash and cash equivalents of $640 million, long-term debt of $1,170 million and a total equity of $2,767 million.

During the quarter, BBY returned about $654 million to its shareholders via share repurchases of $455 million and dividends worth $199 million. Management authorized the payment of a quarterly cash dividend of 88 cents per share. The dividend is payable Jul 5, 2022, to its shareholders of record as of Jun 14, 2022.

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

Guidance

Management updated outlook for fiscal 2023. It envisions fiscal 2023 enterprise revenues between $48.3 billion and $49.9 billion compared with the prior view of $49.3-$50.8 billion. Comparable sales are expected to deteriorate 3-6% from the previously guided range of a decline of 1-4%.

Best Buy now envisions adjusted earnings per share in the band of $8.40-$9 compared with the earlier projection of $8.85-$9.15. BBY delivered earnings of $10.01 last fiscal year.

3 Top Retail Stocks for You

We highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Tecnoglass (TGLS - Free Report) , Boot Barn Holdings (BOOT - Free Report) and Fastenal (FAST - Free Report) .

Tecnoglass engages in manufacturing and selling architectural glass and windows plus aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy). Shares of TGLS have jumped 8.9% in the past year.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 21.3% and 28.7%, respectively, from the corresponding year-ago period's reported figures. TGLS has a trailing four-quarter earnings surprise of 28.3%, on average.

Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently flaunts a Zacks Rank of 1. BOOT has a trailing four-quarter earnings surprise of 25.2%, on average. Shares of BOOT have rallied 22.5% in the past year.
 
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and earnings per share suggests growth of 17% and 4.4%, respectively, from the corresponding year-ago period’s reported figures. BOOT has an expected EPS growth rate of 20% for three-five years.

Fastenal, a national wholesale distributor of industrial and construction supplies, currently has a Zacks Rank #2 (Buy). FAST has a trailing four-quarter earnings surprise of 5%, on average. Shares of FAST have risen 2.6% in the past year.

The Zacks Consensus Estimate for Fastenal's current financial-year sales and earnings per share suggests growth of 15.4% and 16.3%, respectively, from the corresponding year-ago period’s reported numbers. FAST has an expected EPS growth rate of 9% for three-five years.