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Best Buy (BBY) Beats on Q2 Earnings & Sales, Raises View

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Best Buy Company, Inc. (BBY - Free Report) reported better-than-expected earnings for the nineteenth consecutive quarter as the company reported second-quarter fiscal 2018 results. The company posted adjusted earnings per share of 69 cents that comfortably surpassed the Zacks Consensus Estimate of 63 cents. Moreover, earnings also increased 21% year over year, which came as a big surprise to the investors.

Including one-time items, quarterly earnings per share came in at 67 cents compared with 56 cents in the year-ago quarter.

Moreover, the company was also impressive on the revenue front by beating the Zacks Consensus Estimate for the second straight quarter. The company’s revenues increased 4.8% to $8,940 million and surpassed the Zacks Consensus Estimate of $8,661 million. Enterprise comparable-store sales (comps) were up 5.4%, compared with a meager gain of 0.8% reported in the prior-year period. Moreover, comps also topped the company’s expectation primarily owing to robust demand for technology products.

Adjusted operating profit came in at $323 million, up 11.4% year over year. While adjusted operating margin was 3.6%, in comparison with 3.4% in the prior-year quarter.

Despite better-than-expected results and upbeat view, the company’s shares are down nearly 3% during the pre-market trading session. However, the stock has surged 48.2% in the past six months, outperforming the industry’s gain of 41.7%.



Segment Details

Domestic segment revenues gained 4.9% year over year to $8,272 million, primarily owing to 5.4% increase in comparable sales, partially offset by loss of revenues from 11 large-format as well as 42 Best Buy Mobile store shut downs.

Domestic comparable-online sales increased 31.2 % to $1.1 billion. The upside was driven by improved traffic and conversion rates.

The segment’s adjusted gross profit increased 4.7% to $1,985 million during the quarter. Adjusted margin came in at 24%, flat year over year as better margin rates mostly in the appliances, tablets as well as home theater categories were primarily overshadowed by lower margin in mobile category and increase in sales of lower margin wearables category. Adjusted operating income jumped 10.1% to $316 million while adjusted margin expanded 20 basis points (bps) to 3.8%.

International segment revenues rose 3.7% to $668 million, primarily on the back of 4.7% rise in comparable sales growth both in Canada and Mexico. However, foreign currency headwinds impacted the comps by nearly 220 bps.

The segment’s adjusted gross profit inched up 0.6% to $168 million in the quarter and gross margin contracted 80 bps to 25.1%. Adjusted operating profit came in at $7 million, compared with $3 million reported in the year-ago quarter. Adjusted operating income margin came in at 1%, up 50 bps.

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

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

Other Financial Details

Best Buy ended the quarter with cash and cash equivalents of $1,365 million, long-term debt of $1,310 million and total equity of $4,347 million.

On Mar 1, 2017, the board of directors announced a plan to repurchase shares worth $3 billion over the next two years. In the fiscal second quarter, the company repurchased 7.3 million shares for $398 million.

Guidance

Following, better-than expected results the company raised fiscal 2018 guidance. For the fiscal 2018, management forecasts Enterprise revenues (including 53rd week) growth of 4%, up from the prior guidance of 2.5%. The company anticipates adjusted operating income (including 53rd week) growth rate in the range of 4-9%, up from the earlier guided range of 3.5-8.5%. Meanwhile, on a 52-week basis, the company expects enterprise revenues and adjusted operating income growth of 2.5% and 2-6%, respectively.

For third-quarter fiscal 2018, management anticipates Enterprise revenues between $9.3 billion and $9.4 billion, and comparable sales increase of 4.5-5.5%. Management also projects adjusted earnings in the range of 75-80 cents a share.
    
Also in the fiscal third quarter, the company expects domestic comparable sales to rise in the range of 4.5-5.5%, while international comparable sales are projected to be in the range of flat to up 3.0%.

Zacks Rank & Other Key Picks

Best Buy currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks which warrant a look in the retail sector includes The Children's Place, Inc. (PLCE - Free Report) , Burlington Stores, Inc. (BURL - Free Report) and Big Lots, Inc. (BIG - Free Report) . All these stocks carry the same Zacks Rank as Big Lots. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Children's Place delivered an average positive earnings surprise of 16.3% in the trailing four quarters and has a long-term earnings growth rate of 9%.

Burlington Stores delivered an average positive earnings surprise of 22.6% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

Big Lots delivered an average positive earnings surprise of 81.1% in the trailing four quarters and has a long-term earnings growth rate of 13.5%.

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