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Best Buy Banks on 2020 Strategy to Overcome Margin Woes
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Best Buy Co., Inc.’s (BBY - Free Report) extensive investments to upgrade operations, with special focus on developing omni-channel capabilities, supply chain and cost-reduction opportunities, coupled with strengthening partnership with vendors bode well. The company’s “Best Buy 2020: Building the New Blue” program aims to explore growth opportunities and optimize cost. These efforts have helped the stock to outpace its industry in a year and continue posting upbeat results.
The company has exhibited a bull run in the index when compared with the industry. In a year’s time, the stock has increased roughly 41.7%, while the industry has gained 36.9%. Further, the company’s long-term earnings per share growth rate of 14.6% and a VGM Score of A portray its inherent strength. This Zacks Rank #3 (Hold) stock witnessed a positive average earnings surprise of 19.1% in the last four quarters.
Investors are encouraged about the company’s strategy called “Best Buy 2020: Building the New Blue”. In an effort to drive growth, the company is focused on expansion of multi-channel retail business, offering services and solutions that solve customers’ need.
Moreover, it is focusing on accelerating growth in Canada and Mexico. Under this strategy, the top most priority is 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. The company targets $600 million of cost reduction and gross profit optimization by 2021. So, we believe that the company is putting efforts to boost its top line over the long term.
Meanwhile, Best Buy provided an encouraging view for the fiscal 2019. The company expects earnings per share in the range of $4.80-$5.00 for the fiscal year, reflecting growth of about 9-13%. Further, the company updated its fiscal 2021 adjusted earnings per share target to $5.50-$5.75 from a range of $4.35-$5.00, reflecting the benefits of the new tax reform.
Consequently, the Zacks Consensus Estimate has witnessed an uptrend. The Zacks Consensus Estimate of $4.99 and $5.41 for fiscal 2019 and 2020 has increased 4.6% and 9.5%, respectively, in the past 60 days.
Near-Term Impendent
On the flip side, analysts believe that Best Buy's investment activities to boost e-commerce operations and supply chains for countering competition may strain margins in the near term. SG&A expenses have increased 18.6%, 2.2% and 3.2% in the fourth, third and second quarter of fiscal 2018, respectively.
Management hinted that higher investments in the supply chain and increased transportation costs are likely to weigh on gross profit of the Domestic business by approximately 25 basis points in each quarter. The national roll-out of Total Tech Support offering in the second quarter is also expected to weigh on gross margin of the Domestic business.
For the full year, Best Buy expects the rollout to hurt domestic gross margin by approximately 15-20 basis points. International gross margin is also expected to remain under pressure during the first quarter.
Macy's, Inc. (M - Free Report) has a long-term earnings growth rate of 8.5% and a Zacks Rank #1.
Kohl's Corporation (KSS - Free Report) has a long-term earnings growth rate of 6.7% and carries a Zacks Rank #2.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Best Buy Banks on 2020 Strategy to Overcome Margin Woes
Best Buy Co., Inc.’s (BBY - Free Report) extensive investments to upgrade operations, with special focus on developing omni-channel capabilities, supply chain and cost-reduction opportunities, coupled with strengthening partnership with vendors bode well. The company’s “Best Buy 2020: Building the New Blue” program aims to explore growth opportunities and optimize cost. These efforts have helped the stock to outpace its industry in a year and continue posting upbeat results.
The company has exhibited a bull run in the index when compared with the industry. In a year’s time, the stock has increased roughly 41.7%, while the industry has gained 36.9%. Further, the company’s long-term earnings per share growth rate of 14.6% and a VGM Score of A portray its inherent strength. This Zacks Rank #3 (Hold) stock witnessed a positive average earnings surprise of 19.1% in the last four quarters.
Investors are encouraged about the company’s strategy called “Best Buy 2020: Building the New Blue”. In an effort to drive growth, the company is focused on expansion of multi-channel retail business, offering services and solutions that solve customers’ need.
Moreover, it is focusing on accelerating growth in Canada and Mexico. Under this strategy, the top most priority is 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. The company targets $600 million of cost reduction and gross profit optimization by 2021. So, we believe that the company is putting efforts to boost its top line over the long term.
Meanwhile, Best Buy provided an encouraging view for the fiscal 2019. The company expects earnings per share in the range of $4.80-$5.00 for the fiscal year, reflecting growth of about 9-13%. Further, the company updated its fiscal 2021 adjusted earnings per share target to $5.50-$5.75 from a range of $4.35-$5.00, reflecting the benefits of the new tax reform.
Consequently, the Zacks Consensus Estimate has witnessed an uptrend. The Zacks Consensus Estimate of $4.99 and $5.41 for fiscal 2019 and 2020 has increased 4.6% and 9.5%, respectively, in the past 60 days.
Near-Term Impendent
On the flip side, analysts believe that Best Buy's investment activities to boost e-commerce operations and supply chains for countering competition may strain margins in the near term. SG&A expenses have increased 18.6%, 2.2% and 3.2% in the fourth, third and second quarter of fiscal 2018, respectively.
Management hinted that higher investments in the supply chain and increased transportation costs are likely to weigh on gross profit of the Domestic business by approximately 25 basis points in each quarter. The national roll-out of Total Tech Support offering in the second quarter is also expected to weigh on gross margin of the Domestic business.
For the full year, Best Buy expects the rollout to hurt domestic gross margin by approximately 15-20 basis points. International gross margin is also expected to remain under pressure during the first quarter.
3 Retail Stocks Hogging the Limelight
Nordstrom, Inc. (JWN - Free Report) carries a Zacks Rank #2 (Buy). It has a long-term earnings growth rate of 4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Macy's, Inc. (M - Free Report) has a long-term earnings growth rate of 8.5% and a Zacks Rank #1.
Kohl's Corporation (KSS - Free Report) has a long-term earnings growth rate of 6.7% and carries a Zacks Rank #2.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>