Best Buy (BBY) Q3 Earnings: What to Expect

Best Buy
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Evidenced by their strong earnings results, brick-and-mortar retailers such Target (TGT) and Walmart (WMT) have shown they can leverage their scale and execute to withstand the adverse effects of the pandemic.

Best Buy (BBY) also falls into this category. The technology-focused retailer has successfully differentiated itself from competitors, thanks to investments in omni-channel offerings as well as transformation to its supply chain. These moves, along with its increased use of technology and automation, have augmented the customer experiences, while driving cost cuts. But with the stock now trading near all-time highs of around $137, it would seem all of the good news is priced in.

The electronics retailer is set to report third quarter fiscal 2021 earnings results before Tuesday’s opening bell. Investors want to know: Can they bet on more stock gains in the quarters ahead? Due to high consumer demand for electronics, Best Buy is expected to report strong third-quarter results. With the pandemic disrupting in-office and in-person activity across many industries, this has driven millions of consumers to work and learn from home. The need for better and faster computers have sent PC and electronic sales soaring, posting their strongest growth in more than a decade.

This increased demand bodes well not only for Best Buy current quarter revenue. But the stock’s positive reaction will be more about the guidance the company issues for the holiday quarter than the actual numbers themselves. Concerns surrounding price and labor inflation may cause the management to be (understandably) conservative with their forecast. So is now the time to take profits and move on? That’s what the company will answer on Tuesday.

In the three months that ended October, the Minnesota-based company is expected to earn $1.89 per share on revenue of $11.53 billion. This compares to the year-ago quarter when earnings came to $2.06 per share on revenue of $11.85 billion. For the full year, ending in January, earnings of $9.88 per share would rise 25% year over year, while full-year revenue of the $51.49 billion would rise 8.9% year over year.

In the second quarter the company beat on both the top and the bottom lines, reporting an adjusted profit of $2.98 per share, which easily beat the $1.89 per share analysts were looking for, while Q2 revenue of $11.85 billion, rising 24%, driven by increased demand for computing, appliances and tablets. Q2 revenue easily topped Street estimates by $313.13 million. The company reported a 20% rise in enterprise same-store sales. Not only did this beat the consensus estimate of 11.2%, it compares strongly to 6% rise in the year-ago quarter.

Just as impressive, operating income surged 40% year over year, suggesting that the company is still on track to retain the strong revenue and margins it realized at the height of the pandemic. This would explain the recent surge in BBY stock. The question, however, is what will the company say about full-year guidance and the impact the labor inflation and other macroeconomic factors might have on business conditions.

On Tuesday investors will want to see how strongly Best Buy can build on these numbers. That said, despite the recent rise in the stock, the risk-reward on Best Buy remains positive given the company’s commerce tailwinds. Add in the company’s solid dividend yield, Best Buy stock will remain a solid buy for the foreseeable future.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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