Best Buy (BBY) Up 3.3% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Best Buy Co., Inc. BBY. Shares have added about 3.3% in that time frame, outperforming the market.

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

Best Buy Beats on Q2 Earnings & Sales, Raises View

Best Buy Company reported better-than-expected earnings for the nineteenth consecutive quarter as the company reported second-quarter fiscal 2018 results. The company posted adjusted earnings per share of 69 cents that comfortably surpassed the Zacks Consensus Estimate of 63 cents. Moreover, earnings also increased 21% year over year, which came as a big surprise to the investors.

Including one-time items, quarterly earnings per share came in at 67 cents compared with 56 cents in the year-ago quarter.

Moreover, the company was also impressive on the revenue front by beating the Zacks Consensus Estimate for the second straight quarter. The company’s revenues increased 4.8% to $8,940 million and surpassed the Zacks Consensus Estimate of $8,661 million. Enterprise comparable-store sales (comps) were up 5.4%, compared with a meager gain of 0.8% reported in the prior-year period. Moreover, comps also topped the company’s expectation primarily owing to robust demand for technology products.

Adjusted operating profit came in at $323 million, up 11.4% year over year. While adjusted operating margin was 3.6%, in comparison with 3.4% in the prior-year quarter.

Segment Details

Domestic segment revenues gained 4.9% year over year to $8,272 million, primarily owing to 5.4% increase in comparable sales, partially offset by loss of revenues from 11 large-format as well as 42 Best Buy Mobile store shut downs.

Domestic comparable-online sales increased 31.2 % to $1.1 billion. The upside was driven by improved traffic and conversion rates.

The segment’s adjusted gross profit increased 4.7% to $1,985 million during the quarter. Adjusted margin came in at 24%, flat year over year as better margin rates mostly in the appliances, tablets as well as home theater categories were primarily overshadowed by lower margin in mobile category, increase in sales of lower margin wearables category. Adjusted operating income jumped 10.1% to $316 million while adjusted margin expanded 20 basis points (bps) to 3.8%.

International segment revenues rose 3.7% to $668 million, primarily on the back of 4.7% rise in comparable sales growth both in Canada and Mexico. However, foreign currency headwinds impacted the comps by nearly 220 bps.

The segment’s adjusted gross profit inched up 0.6% to $168 million in the quarter and gross margin contracted 80 bps to 25.1%. Adjusted operating profit came in at $7 million, compared with $3 million reported in the year-ago quarter. Adjusted operating income margin came in at 1%, up 50 bps.

Other Financial Details

Best Buy ended the quarter with cash and cash equivalents of $1,365 million, long-term debt of $1,310 million and total equity of $4,347 million.

On Mar 1, 2017, the board of directors announced a plan to repurchase shares worth $3 billion over the next two years. In the fiscal second quarter, the company repurchased 7.3 million shares for $398 million.

Guidance

Following, better-than expected results the company raised fiscal 2018 guidance. For the fiscal 2018, management forecasts Enterprise revenues (including 53rd week) growth of 4%, up from the prior guidance of 2.5%. The company anticipates adjusted operating income (including 53rd week) growth rate in the range of 4-9%, up from the earlier guided range of 3.5-8.5%. Meanwhile, on a 52-week basis, the company expects enterprise revenues and adjusted operating income growth of 2.5% and 2-6%, respectively.

For third-quarter fiscal 2018, management anticipates Enterprise revenues between $9.3 billion and $9.4 billion, and comparable sales increase of 4.5-5.5%. Management also projects adjusted earnings in the range of 75-80 cents a share.
    
Also in the fiscal third quarter, the company expects domestic comparable sales to rise in the range of 4.5-5.5%, while international comparable sales are projected to be in the range of flat to up 3.0%.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

Best Buy Co., Inc. Price and Consensus

 

Best Buy Co., Inc. Price and Consensus | Best Buy Co., Inc. Quote

VGM Scores

At this time, Best Buy's stock has a strong Growth Score of A, though it is lagging a lot on the momentum front with a F. However, 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.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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