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Best Buy (BBY) Up 2.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Best Buy (BBY - Free Report) . Shares have added about 2.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Best Buy due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Best Buy’s Q1 Earnings Surpass Estimates, View Intact

Best Buy commenced fiscal 2019 on an upbeat note, with both the top and the bottom line not only surpassing the Zacks Consensus Estimate for the second straight quarter but also growing year over year.

This consumer electronics retailer posted first-quarter adjusted earnings per share of 82 cents, surpassing the Zacks Consensus Estimate of 75 cents. Moreover, the bottom line improved 36.7% year over year.

The top line increased nearly 6.8% year over year to $9,109 million and beat the consensus mark of $8,785 million. Enterprise comparable-store sales (comps) were up 7.1% compared with 1.6% in the prior-year quarter. Home theater, computing and tablet categories were the largest revenue drivers.

Adjusted operating profit came in at $302 million, up 0.7% year over year. However, adjusted operating margin contracted 20 basis points (bps) to 3.3%.

Segment Details

Domestic segment revenues rose 6.3% year over year to $8,412 million, primarily owing to a 7.1% increase in comparable sales. This was partially offset by a revenue loss stemming from the shutdown of 17 large-format and 193 Best Buy Mobile stores over the past year. Management highlighted that Best Buy mobile small format store closures is likely to hurt revenue by approximately $225 million.

Domestic comparable-online sales grew 12% to $1.14 billion on an increase in average order value and conversion rates.

The segment’s gross profit rose 4.9% to $1,962 million, while adjusted gross margin came in at 23.3%, down 30 bps year over year. Adjusted operating income rose 1.7% to $303 million. However, adjusted operating income margin contracted 20 bps to 3.6%.

International segment revenues climbed 13.1% to $697 million, primarily on the back of a 6.4% rise in comparable sales growth in Canada and Mexico, and a favorable foreign currency impact of 500 bps.

The segment’s gross profit grew 7.9% to $163 million in the reported quarter but adjusted gross margin contracted 110 bps to 23.4%. Adjusted operating loss came in at $1 million, down from adjusted operating profit of $2 million in the year-ago quarter.

Other Financial Details

Best Buy ended first-quarter fiscal 2019 with cash and cash equivalents of $1,848 million, long-term debt of $792 million and total equity of $3,420 million. In the fiscal first quarter, the company returned about $528 million to shareholders via buybacks of $400 million and dividends of $128 million. Moreover, it declared to buy back $1.5 billion of shares during fiscal 2019. Management anticipates capital expenditures between $850 million and $900 million.

Guidance

For fiscal 2019, management forecasts Enterprise revenues of $41-42 billion, with comps growth 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 25% and earnings per share in the range of $4.80-$5.00, reflecting growth of about 9-13% from fiscal 2018.

For the second quarter, management anticipates Enterprise revenues between $9.1 billion and $9.2 billion and comparable sales increase of 3-4%. Management projects adjusted earnings in the band of 77-82 cents a share, reflecting an increase of 12-19% year over year.

Also, in the fiscal second quarter, the company expects domestic comparable sales growth of 3-4%, while international comparable sales are estimated in the band of 1-4%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.9% due to these changes.

VGM Scores

At this time, Best Buy has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Best Buy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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