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Best Buy (BBY) Q2 Earnings Surpass Estimates, FY19 View Up

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Best Buy Company, Inc. (BBY - Free Report) posted robust second-quarter fiscal 2019 results, wherein both the top and the bottom lines not only surpassed the Zacks Consensus Estimate for the third straight quarter but also grew year over year.

In spite of better-than-expected results, shares are down 5.3% during the pre-market trading session. Analysts pointed that this might be due to sluggish online sales growth during the quarter under review, when compared with preceding period. They also pointed that soft third-quarter earnings and comparable sales projection may be another reason behind the same.

Let’s Delve

This consumer electronics retailer posted second-quarter adjusted earnings per share of 91 cents, surpassing the Zacks Consensus Estimate of 83 cents. Moreover, the bottom line improved 31.9% year over year, which boosted investors’ confidence.

The top line increased nearly 4.9% year over year to $9,379 million and beat the consensus mark of $9,259 million. Enterprise comparable sales were up 6.2% compared with 5.4% in the prior-year quarter.

Moreover, this Zacks Rank #3 (Hold) stock has rallied nearly 19.3% year to date, outperforming the industry’s growth of 14.4%.

Adjusted operating profit came in at $352 million, up 9% year over year. However, adjusted operating margin expanded 20 basis points (bps) to 3.8%.

Segment Details

Domestic segment revenues rose 4.4% year over year to $8,639 million, primarily owing to a 6% increase in comparable sales. This was partially offset by a revenue loss stemming from the shutdown of 17 large-format and 292 Best Buy Mobile stores in the past year.

Domestic comparable-online sales grew 10.1% to $1.21 billion due to an increase in traffic and higher conversion rates. However, we note that growth rate has decelerated from 12% in the preceding quarter and 31.2% in the year-ago period.

The segment’s gross profit rose 3.7% to $2,058 million, while adjusted gross margin came in at 23.8%, down 20 bps year over year. Adjusted operating income rose 9.5% to $346 million. However, adjusted operating income margin expanded 20 bps to 4%.

International segment revenues climbed 10.8% to $740 million, primarily on the back of a 7.6% rise in comparable sales growth in Canada and Mexico, and a favorable foreign currency impact of 60 bps.

The segment’s gross profit grew 1.8% to $171 million in the reported quarter but adjusted gross margin contracted 200 bps to 23.1%. Adjusted operating income came in at $6 million, down from adjusted operating profit of $7 million in the year-ago quarter.

Other Financial Details

Best Buy ended the quarter with cash and cash equivalents of $1,865 million, long-term debt of $801 million and total equity of $3,186 million. In the fiscal second quarter, the company returned about $499 million to shareholders via buybacks of $374 million and dividends of $125 million. Moreover, it declared to buy back $1.5 billion of shares during fiscal 2019.


Best Buy provided an encouraging view for fiscal 2019. For fiscal 2019, management forecasts Enterprise revenues of $42.3-42.7 billion, with comps growth of 3.5-4.5%, up from the prior-year guidance of nearly flat to up 2%. The company anticipates adjusted operating income rate of about 4.5%, flat with the fiscal 2018 level. Meanwhile, the company expects an effective tax rate of 24.5% and earnings per share in the range of $4.95-$5.10, reflecting growth of about 12-15% from fiscal 2018. The Zacks Consensus Estimate for fiscal 2019 is pegged at $5.01.

For the third quarter, management anticipates Enterprise revenues between $9.4-$9.5 billion and comparable sales increase of 2.5-3.5%. Management projects adjusted earnings in a band of 79-84 cents a share, reflecting an increase of 1-8% year over year. The Zacks Consensus Estimate for the quarter is 93 cents.

Also, in the fiscal third quarter, the company expects domestic comparable sales growth of 2.5-3.5%, while international comparable sales are estimated in a band of 2-4%.

Interested in the Retail Space? Check These

Urban Outfitters, Inc. (URBN - Free Report) has a long-term earnings growth rate of 12% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boot Barn Holdings, Inc. (BOOT - Free Report) has a long-term earnings growth rate of 23% and a Zacks Rank #1.

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