Best Buy Company, Inc. (BBY - Free Report) reported impressive third-quarter fiscal 2019 results, wherein both the top and the bottom lines exceeded the Zacks Consensus Estimate for the fourth straight quarter. Both the metrics also improved on a year-over-year basis. Following the quarterly results, management raised its outlook for fiscal 2019 and issued guidance for the fourth quarter.
However, this Zacks Rank #4 (Sell) stock has lost 14.1% in the past six months, wider than the industry’s 9.2% decline.
Let’s Delve Deep
This consumer electronics retailer posted third-quarter adjusted earnings per share of 93 cents, surpassing the Zacks Consensus Estimate of 85 cents. Moreover, the bottom line improved 19% year over year.
On a GAAP basis, earnings came in at 99 cents, up 27% from the year-ago quarter.
The top line increased nearly 2.9% year over year to $9,590 million and trumped the consensus mark of $9,548 million. Enterprise comparable sales were up 4.3% compared with 4.4% in the prior-year quarter.
We note that the company has been consistently benefiting from its Best Buy 2020: Building the New Blue initiative by enhancing the In-Home Advisor program and expanding its Total Tech Support members. Moreover, it completed the buyout of GreatCall, Inc. — a major health services provider — for $792 million.
However, adjusted operating profit came in at $322 million, down 8% year over year. Also, adjusted operating margin contracted 20 basis points (bps) to 3.5%.
Domestic segment revenues rose 3.1% year over year to $8,756 million, primarily owing to a 4.3% increase in comparable sales. This was partly offset by decline in revenues due to the shutdown of 19 large-format and 287 Best Buy Mobile stores in the past year. Comparable-online sales at this division increased 12.6% to $1.21 billion, mainly owing to higher traffic and conversion rates.
The segment’s gross profit rose 2.1% to $2,139 million, while adjusted gross margin came in at 24.4%, down 30 bps year over year. Further, adjusted operating income decreased 8.7% to $315 million, with operating margin contracting 50 bps to 3.6%.
International segment revenues edged up 0.6% to $834 million, primarily on the back of a 3.7% rise in comparable sales in Canada and Mexico, and sales from six large-format stores introduced in Mexico over the past year. The improvement was somewhat mitigated by roughly 460 bps adverse impact from foreign currency.
The segment’s gross profit inched up 0.5% to $185 million in the reported quarter but adjusted gross margin remained flat at 22.2%. Adjusted operating income came in at $7 million, down from adjusted operating profit of $5 million in the year-ago quarter.
Other Financial Details
Best Buy ended the quarter with cash and cash equivalents of $1,228 million, long-term debt of $1,280 million and total equity of $3,012 million. In the fiscal third quarter, the company returned about $493 million to its shareholders via buybacks of $370 million and dividends of $123 million. Moreover, it expects to buy back $1.5 billion of shares during fiscal 2019.
Best Buy raised guidance for fiscal 2019. Management forecasts Enterprise revenues of $42.5-42.9 billion, up from $42.3-42.7 billion expected earlier. Further, comps are expected to grow 4-5%, up from the prior guided range of 3.5-4.5%. The company anticipates adjusted operating income rate of about 4.5%, flat with the fiscal 2018 level, on a 52-week basis. Meanwhile, it expects an effective tax rate of 24% and earnings per share in the range of $5.09-$5.19, reflecting growth of about 15-17% from fiscal 2018. Earlier, management expected earnings per share in the $4.95-$5.10 range. The Zacks Consensus Estimate for fiscal 2019 is pegged at $5.11.
For the fiscal fourth quarter, management anticipates Enterprise revenues between $14.4 and $14.8 billion and comps to be flat to up 3%. Management projects adjusted earnings in the band of $2.48-$2.58 per share. The Zacks Consensus Estimate for the quarter is pegged at $2.58.
Also, the company expects both domestic and international comps in the range of flat to up 3% for the fiscal fourth quarter.
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