Best Buy Surges 12.6% on Its 2Q16 Earnings

An Insight into Best Buy’s Impressive 2Q16 Results

Second-quarter earnings

Best Buy (BBY) delivered better-than-expected results in the second quarter of fiscal 2016, which ended August 1, 2015. The company’s adjusted EPS (earnings per share) in 2Q16 came in at $0.49, beating the consensus Wall Street analyst earnings estimate of $0.34. The share price of the consumer electronics retailer surged by 12.6% on August 25, the day its 2Q16 results were reported.

Adjusted earnings

The company’s 2Q16 adjusted EPS, which excludes the impact of one-time items, grew 16.7% from the comparable quarter of the previous year. The adjusted EPS in 2Q16 excluded the impact of a gain of $0.03 per share associated with the cathode ray tube litigation settlement, asset impairment charges of $0.03 per share, and a restructuring charge of $0.03.

Including one-time items, Best Buy’s earnings increased by 12.3% in 2Q16, driven by higher revenue and the previously mentioned gain related to a litigation.

Best Buy’s strategy to offer products and services at competitive prices is working in its favor. However, the strong performance of the domestic segment was adversely affected by weakness in the company’s international operations.

Best Buy constitutes 0.4% of the portfolio holdings of the Vanguard Consumer Discretionary ETF (VCR) and 0.3% of the iShares Global Consumer Discretionary ETF (RXI).

Competitive landscape

With the closure of Circuit City years ago and the recent bankruptcy of RadioShack, Best Buy competes with online retailers like Amazon (AMZN) and traditional retailers that also sell consumer electronics, including Walmart (WMT), Target (TGT), and Sears Holdings (SHLD). The company also competes with smaller players like GameStop (GME), hhgregg (HGG), and Aaron’s (AAN).

Target reported adjusted EPS of $1.22 in 2Q16, beating the consensus earnings estimate of $1.11. The company derived 14% of its 2Q16 sales from the Hardlines product category, which includes consumer electronics. The adjusted EPS for GameStop (GME) came in at $0.31, reflecting a 40.9% rise on a year-over-year basis. The company’s adjusted earnings excluded the impact of acquisition costs relating to GeekNet and the technology brand’s expansion.

For more information on Best Buy’s business, read our Best Buy overview.

Continue to Next Part

Browse this series on Market Realist:

• Part 2 - What Drove Best Buy’s 2Q16 Revenue ahead of Estimates?

• Part 3 - Best Buy’s International Segment Remained a Sore Spot in 2Q16

• Part 4 - Best Buy’s Margins Reflect Marked Improvement in 2Q16