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Best Buy's (BBY) New Blue Strategy & Online Sales Bode Well

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Best Buy Co., Inc. (BBY - Free Report) looks good on the back of its strategic efforts, sturdy online sales growth and solid earnings surprise history. Though the company delivered robust results in second-quarter fiscal 2018, the stock was hurt as investors are concerned about margins that may come under pressure due to increase in investments.

In fact, shares of this leading multinational specialty retailer have declined 11.5% since the company reported its earnings on Aug 29. Nevertheless, this Zacks Rank #3 (Hold) stock has been up 29.5% year to date compared with the Zacks Electronics Retail industry’s gain of 25.2%. Currently, the industry is placed at the top 9% of the Zacks classified industries (24 out of 256).



Moreover, the stock boasts a VGM Score of A with a long-term earnings growth rate of 12%, which portrays its inherent potential.

Let’s take a detailed analysis of the company’s pros and cons.

Best Buy 2020: A Game Changer

Following the successful completion of Renew Blue program, the company has launched a fresh strategy called Best Buy 2020: Building the New Blue.

Meanwhile, Best Buy remains focused on expansion of multi-channel retail business, offering services and solutions that cater to customer needs. In addition, it is focusing on accelerating growth in Canada and Mexico.

Under this strategy, the top most priority for fiscal 2018 will be exploring and pursuing growth opportunities, better execution in key areas, cost optimization and investing in people as well as systems to drive growth, implementation and efficiencies.

Notably, the company has already achieved the cost reduction target of $450 million and targets $600 million of cost reduction as well as gross profit optimization by fiscal 2021.

Robust Q2 & Estimates Trend

Best Buy reported better-than-expected earnings for the 19th straight quarter in second-quarter fiscal 2018. In the trailing four quarters, the company’s earnings have surpassed the Zacks Consensus Estimate by an average of 27.2%.

Best Buy Co., Inc. Price and EPS Surprise

 

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

In fact, the bottom line increased 21% year over year in the fiscal second quarter. The company was also impressive on the revenue front, beating the Zacks Consensus Estimate for the second straight quarter. Results were driven by the robust demand for technology products. (Read more: Best Buy Beats on Q2 Earnings & Sales, Raises View)

Consequently, management raised fiscal 2018 guidance and forecasts Enterprise revenues (including 53rd week) growth of 4%, up from the prior guidance of 2.5%. For the fiscal third quarter, earnings are envisioned in the range of 75-80 cents per share.

Best Buy’s earnings estimates have witnessed solid upward revisions over the last seven days. The Zacks Consensus Estimate of $4.03 and $4.28 moved up 13 cents for fiscal 2018 and fiscal 2019, respectively. Also, the Zacks Consensus Estimate of 76 cents for the fiscal third quarter has climbed 12 cents.

Other Strategic Endeavors

Best Buy is making extensive investments to upgrade operations with special focus on developing omni-channel capabilities and strengthening partnership with vendors. Also, the company is leaving no stone unturned to attract consumers and attain incremental revenues.

In fact, we believe that the store-in-a-store concept is likely to be considered a game changer for the company as it facilitates the display of different brands under one roof and ensures larger footfall.

Best Buy Vs. Industry



Weakness/Concerns

Best Buy is planning to spend nearly $700 million in fiscal 2018, up from the previous estimate of $650 million. This is because the company wants to increase the investment to boost e-Commerce operations and supply chains to counter competition. The increase in investment is likely to hurt margins in the coming quarters.

Further, stiff competition, tepid retail landscape and aggressive promotional strategies might hurt the company’s growth and profitability.

Still Interested in Retail? Check these Hot Picks

Better-ranked stocks in the broader sector include Aaron's, Inc. (AAN - Free Report) , The Children's Place, Inc. (PLCE - Free Report) and Sally Beauty Holdings, Inc. (SBH - Free Report) .

Aaron's earnings have outpaced the Zacks Consensus Estimate in each of the trailing four quarters with an average of 14%. Currently, the stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Children's Place, a Zacks Rank #1 stock, has a long-term earnings growth rate of 9%. Also, its earnings have delivered positive earnings surprise of 16.3% in the last four quarters.

Sally Beauty has a long-term earnings growth rate of 5.6% and carries a Zacks Rank #2 (Buy). Also, its earnings have surpassed the Zacks Consensus Estimate by 6.1% in the last quarter.

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