Factors Likely to Decide Best Buy's (BBY) Fate in Q4 Earnings

Best Buy Co. IncBBY is likely to register a decent improvement in the bottom line when i t report s fourth-quarter fiscal 2019 numbers on Feb 27. Notably, this Minnesota-based company had reported higher earnings and also comfortably surpassed the Zacks Consensus Estimate in the preceding four quarters.

The Zacks Consensus Estimate for earnings for to-be-reported quarter is currently pegged at $2.57, reflecting an increase from $2.42 in the year-ago quarter. We note that the Zacks Consensus Estimate has remained stable over the past 30 days. The Zacks Consensus Estimate for revenues is pegged at $14,715 million, down about 4.2% from the year-ago quarter.

Best Buy Co., Inc. Price and EPS Surprise

Best Buy Co., Inc. Price and EPS Surprise | Best Buy Co., Inc. Quote

Factors to Consider

Best Buy's Building the New Blue initiative has acted as one of the key growth drivers for the company's performance. In this regard, the company has been smoothly progressing with the implementation of this strategy that includes exploring and pursuing growth opportunities, better execution in key areas, cost optimization, and investment in people and systems. With regard to cost savings and increasing productivity, management targets $600 million of cost reduction by fiscal 2021, out of which the company has already accomplished $465 million. The Building the New Blue initiative along with robust cost-saving efforts is expected to boost the company's profitability in the to-be-reported quarter.

The company's extensive investments to upgrade operations, with special focus on developing omni-channel capabilities, stores, supply chain, new business initiatives and strengthening partnership with vendors bode well. The company continues to invest in improving its In-Home Advisor program and expanding the Total Tech Support members to boost customers' experience. In fact, management concluded the buyout of GreatCall, a major connected health technology company, to offer unique solutions to aging customers.

Moreover, solid comparable sales (comps) performance has also been contributing to Best Buy's results. Notably, the company witnessed comps growth of 4.3% during the third quarter, with positive comps in all regions and products. Further, top-line growth in the last reported quarter was driven by favorable environment and better customer response. Encouraged by this, management had earlier guided enterprise revenues between $14.4 billion and $14.8 billion, and comps to be flat to up 3% for the fiscal fourth quarter. Also, Best Buy had anticipated both domestic and international comps to be flat to up 3% for the to-be-reported quarter.

For fiscal 2019, Best Buy had anticipated enterprise revenues of $42.5-$42.9 billion along with 4-5% comps growth. Adjusted earnings per share for the said period was envisioned to be $5.09-$5.19, which reflects growth of about 15-17% from $4.42 in fiscal 2018.

Best Buy is seeing rising SG&A costs for quite some time now that has weighed on its margins. Higher cost of investments to boost e-commerce operations and supply-chain activities have been weighing on Best Buy's margins. However, management had projected SG&A costs to decline low-single digit for the fiscal fourth quarter. The company had previously guided gross margin to remain flat in the fourth quarter of fiscal 2019.

What does the Zacks Model Predict?

Our proven model doesn't show that Best Buy can beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Although Best Buy currently carries a Zacks Rank #3, its Earnings ESP of -0.65% makes surprise prediction difficult. You can see the complete list of today's Zacks #1 Rank stocks here .

Stocks Poised to Beat Earnings Estimates

Here are few companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Zumiez ZUMZ has an Earnings ESP of +0.45% and a Zacks Rank #1.

Abercrombie & Fitch ANF has an Earnings ESP of +0.94% and a Zacks Rank #2.

Costco COST has an Earnings ESP of +1.42% and a Zacks Rank #3.

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

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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