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Will Best Buy's Q3 Report Give BBY Stock a Boost During the Holidays?

Christopher Vargas

Best Buy BBY is set to report its Q3 performance before the market opens on Tuesday, November 26. The retailer has seen its share jump over 37% in 2019 and its stock is currently trading around 7% below its 52-week high of $78.53.

Best Buy has employed a number of initiatives to better equip itself to compete in today’s market where e-commerce has changed the landscape. So will its Q3 earnings give Best Buy a momentum boost going into the pivotal holiday shopping season?

Best Buy Gears Up for the Holidays

Best Buy announced in late October that it would offer customers free next-day delivery on thousands of items. The effort comes as the company attempts to better compete against retailers like Walmart WMT, Target TGT, and e-commerce giant Amazon AMZN in the busy holiday season.

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Big ticket items like TVs and major appliances are excluded, but Best Buy is providing free standard shipping on anything that doesn't qualify for next-day delivery. Best Buy is now matching Amazon’s coveted delivery speeds on select items without the fees of a Prime membership, which can help the company capture market share during the holidays.

Best Buy uses its stores to fulfill online orders, which has helped the retailer keep its brick and mortar locations relevant in the digital era. The company turns its stores into distribution centers as it ships orders that come in through its website and app. Around 70% of the population lives within 10 miles of a Best Buy store, according to the firm. This clearly helps with the logistics of its new delivery times.

In addition to the proximity of its stores to the general population, Best Buy has made other supply chain improvements that boost its ability to deliver products quickly. The company has invested in automation, installing seven automated storage and retrieval systems and two automated packing systems at its regional distribution centers. The investment in automation helps bring down distribution costs across the board.

Outlook

Best Buy has been able to survive the retail apocalypse thus far because of its efforts to use its stores to enhance its delivery capabilities, which in turn have driven its digital success. The company now looks to enhance its customer relationships through its Total Tech Support subscription service.

The Total Tech Support service offers home visits related to in-home consultations, installations, and repairs. The retailer’s new service now boasts 2 million subscribers to help Best Buy deepen its relationship with customers. The loyal customers it garners through its helpful services then spend more money than the average consumer.

Best Buy is also targeting the health care industry to extend its runway for growth. The company has made a number of acquisitions such as GreatCall, as it moves its operations into the lucrative market. The GreatCall service provides 24/7 access to U.S.-based agents who can assist with non-emergency health situations and dispatch emergency services if necessary.

Our Q3 consensus estimates forecast a bottom-line hike of 11.83% to $1.04 per share and a top-line rally of 1.48% to $9.73 billion. Comparable store sales are projected to come in at 1.3% in the third quarter. Looking ahead to the retailer's full fiscal year figures, estimates call for earnings to grow 8.08% to $5.75 per share and for sales to pop 1.33% to $43.45 billion.

Bottom Line

The retailer has made good use of its brick and mortar locations to match the delivery times of rival companies. Its continued push to deepen its relationship with its customers through convenient services should bode well for the company moving forward.

The firm’s venture into the health care industry is ambitious and potentially lucrative. If Best Buy can provide an encouraging third quarter report then it might ride the momentum through the rest of the the holiday season, where it looks poised to cash in.

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