Best Buy Co., Inc. (BBY Quick QuoteBBY - Free Report) posted better-than-expected earnings for third-quarter fiscal 2024. However, sales and earnings decreased year over year. Best Buy’s adjusted earnings of $1.29 per share beat the Zacks Consensus Estimate of $1.19. The bottom line decreased from $1.38 per share recorded in the year-ago period.

Over the past three months, this Zacks Rank #3 (Hold) stock has lost 8.2% compared with the industry’s 12.2% decline.

Q3 Details

Enterprise revenues declined 7.8% from the prior fiscal year’s quarterly number to $9,756 million. The figure missed the Zacks Consensus Estimate of $9,883 million. Enterprise comparable sales dropped 6.9% year over year, narrower than 10.4% decline in the year-ago quarter.

Gross profit declined 4.3% to $2,232 million, while the gross margin expanded 90 basis points (bps) to 22.9%. The metric came in line with our estimate. Adjusted operating income came in at $369 million, down from the $412 million recorded in the year-ago quarter. The adjusted operating margin fell 10 bps to 3.8% but fared better than our estimate of 3.4%.

We note that adjusted selling, general and administrative expenses fell 3% to $1,863 million, while as a percentage of revenues, the same increased 100 bps to 19.1%. Our estimate for adjusted SG&A expenses, as a rate of revenues, was pegged at 19.6%.

Segmental Details

The Domestic segment’s revenues fell 8.2% to $8,996 million. This decline from the last fiscal year’s quarterly reading was mainly induced by a comparable sales decrease of 7.3%. From a merchandising perspective, comparable sales decreased in categories, with the primary drivers being appliances, computing, home theater and mobile phones, partially offset by growth in gaming. We expected revenues of $9,134.5 million from this segment.

The Domestic segment’s online revenues of $2.75 billion declined 9.3% year over year on a comparable basis. As a percentage of total domestic revenues, online revenues were 30.6% compared with 31% in the year-ago quarter.

The segment’s gross profit rate increased 100 bps to 22.9% due to better performance from the company’s membership offerings, including higher service margin rates, favorable product margin rates and lower supply chain expenses.

In the International segment, revenues fell 3.4% to $760 million, mainly due to a comparable sales decline of 1.9% and adverse foreign currency translations. The segment’s operating income came in at $18 million or 2.4% of revenues, lower than the $33 million or 4.2% of revenues reported in the year-ago quarter. Our estimate for revenues from the segment was pegged at $748 million.

Other Details

Best Buy ended the quarter with cash and cash equivalents of $636 million, long-term debt of $1,130 million and a total equity of $2,812 million.

At the end of the reported quarter, merchandise inventories of $7,562 million increased 3.7% from the year-ago quarter’s reading.

In the quarter, BBY returned about $313 million to its shareholders via dividends of $201 million and share repurchases of $112 million. The company’s board announced the payment of a regular quarterly cash dividend of 92 cents per share, payable on Jan 2, 2024, to shareholders of record as of Dec 12, 2023.

Guidance

For fiscal 2024, including 53 weeks, management projects revenues of $43.1-$43.7 billion and a comparable sales decline of 6-7.5%. Earlier, it anticipated revenues of $43.8-$44.5 billion, with a comparable sales decline of 4.5-6%.

The company expects a fiscal 2024 adjusted operating margin of 4-4.1% compared with the 3.9-4.1% mentioned earlier. For fiscal 2024, management anticipates an effective income tax rate of 24%. The company expects adjusted earnings per share (EPS) between $6.00 and $6.30 compared with the $6.00 and $6.40 guided earlier. Capital expenditure is anticipated to be $825 million.

For the fourth quarter of fiscal 2024, Best Buy anticipates comparable sales to decline by 3-7%. The adjusted operating income rate is expected to be in the range of 4.7-5%.

BBY’s guidance includes the impact of the 53rd week in the fiscal year. The 53rd week is expected to add about $700 million of revenue in the fiscal fourth quarter and boost the adjusted operating income rate by 10 basis points in the fiscal year.

Stocks to Consider

Some better-ranked stocks from the same sector are American Eagle Outfitters Inc. (AEO Quick QuoteAEO - Free Report) , Abercrombie & Fitch Co. (ANF Quick QuoteANF - Free Report) and Deckers Outdoor Corporation (DECK Quick QuoteDECK - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Eagle Outfitters is a specialty retailer of casual apparel, accessories and footwear. The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal-year earnings and sales indicates growth of 37.1% and 2.4%, respectively, from the previous year’s reported figures. AEO has a trailing four-quarter average earnings surprise of 43.2%.

Abercrombie & Fitch is a specialty retailer of premium, high-quality casual apparel. ANF delivered a significant earnings surprise in the last reported quarter. The Zacks Consensus Estimate for Abercrombie & Fitch’s current fiscal-year sales implies growth of 10.3% from the previous year’s reported number. ANF has a trailing four-quarter average earnings surprise of 724.8%.

Deckers Outdoor is a leading designer, producer and brand manager of innovative, niche footwear and accessories. The Zacks Consensus Estimate for Deckers’ current fiscal-year earnings and sales indicates growth of 20.9% and 11.4%, respectively, from the previous year’s reported figures. DECK has a trailing four-quarter average earnings surprise of 26.3%.