On Tuesday, shares of electronics and appliance retailer Best Buy Co. (BBY - Free Report) are plummeting, down about 11% in morning trading after the company reported its latest quarterly earnings results.
Interestingly, Best Buy posted strong results across the board. Earnings of 69 cents per share beat the Zacks Consensus Estimate of 63 cents per share and grew 21% from the prior-year period; net income was $209 million. Revenues came in at $8.94 billion, also beating the Zacks Consensus Estimate of $8.66 billion.
Same-store sales, in particular, rose 5.4% year-over-year, much better than the expected 2.2% growth. Online comparable sales surged roughly 31% compared to the growth rate of 23.7% seen a year ago, thanks to faster shipping, improvements to its online checkout process, and enhanced search functionality attracted more customers.
Comps were also driven by heightened consumer demand for technology, especially wearable devices, laptops, and gaming consoles.
However, CEO Hubert Joly does not think his company’s current mid-single digit rise in comparable sales would continue, saying on a call with analysts these same-store sales results “did not represent a new normal.”
These remarks, in turn, have raised concerns about whether or not Best Buy’s recent turnaround is as maintainable as it seems, worry seen in BBY’s performance today.
This turnaround included strategies like closing underperforming stores, matching Amazon’s (AMZN - Free Report) prices, and improving customer service. Best Buy was able to reinvigorate declining sales and profits, and is one of the only electronics companies that can say it has beaten analyst estimates in six of the past eight quarters, while its competitors hhgregg and RadioShack have gone bankrupt.
Best Buy now expects full year revenue to rise about 4% compared to earlier guidance that of only a 2.5% increase. The consumer electronics retailer also expects income growth of 4% to 9%, higher than its previous forecast of 3.5% to 8.5% growth.
Best Buy In-Depth
Since the start of 2017, shares of Best Buy have gained over 46%, and in the past one year, the electronics retailer stock is up over 60%. BBY is currently a #2 (Buy) on the Zacks Rank, with a VGM score of ‘A.’ The company is in a high-performing industry as well, and Retail-Consumer Electronics has returned over 39% year-to-date, sitting in the top 5% of all 265 industries ranked on the Zacks Industry Rank.
Its P/E of 16.04 falls in-line with its industry’s, though Best Buy still trades below the S&P 500. However, if you look at the company’s performance over the last three years, you’ll see not only see Best Buy’s turnaround start taking effect, but you’ll also notice its valuation slowly begin to rise as a result.
While investor sentiment rightfully took a downturn in the wake of Mr. Joly’s statement, Best Buy is still one of the more expensive retail stocks out there. This higher valuation, though, is because the company is doing something right. Because of its niche inventory and dedication to customer needs, i.e. fast shipping and installation services, Best Buy has been able to compete with Amazon where others have failed.
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