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Why Is Best Buy (BBY) Down 9.9% Since the Last Earnings Report?

It has been about a month since the last earnings report for Best Buy Co., Inc.BBY . Shares have lost about 9.9% in that time frame, underperforming the market.

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

Best Buy Beats on Q1 Earnings & Revenues Estimate

Best Buy Company reported better-than-expected earnings for the eighteenth-consecutive quarter as the company reported first-quarter fiscal 2018 results. The company posted adjusted earnings per share of $0.60 that comfortably surpassed the Zacks Consensus Estimate of $0.40. Moreover, earnings also increased 40% year over year, which came as a big surprise to the investors.

Including one-time items, quarterly earnings per share came in at $0.60 compared with $0.69 in the year-ago quarter.

Moreover, the company impressed investors on the revenues front by beating the Zacks Consensus Estimate after missing the same in the preceding quarter. The company's revenues increased 1% to $8,528 million and surpassed the Zacks Consensus Estimate of $8,264 million. Enterprise comparable-store sales (comps) were up 1.6%, compared with a decline of 0.1% in the prior-year period. The company's results were driven by growth in international sales. Robust performance of gaming and mobile also drove the results higher.

Adjusted operating profit came in at $300 million, up 25% year over year. While adjusted operating margin was 3.5%, in comparison with 2.8% in the prior-year quarter.

Segment Details

Domestic segment revenues gained 1.1% year over year to $7,912 million, primarily owing to 1.4% increase in comparable sales, partially offset by loss of revenues from 12 large-format as well as 40 Best Buy Mobile store shut downs.

Domestic comparable-online sales increased 22.5 % to $1.02 billion. The upside was driven by improved traffic and conversion rates.

The segment's adjusted gross profit increased 3.8% to $1,871 million during the quarter. Adjusted margin came in at 23.6% compared with 23% in the prior-year quarter on the back of better margin rates particularly in the appliances as well as home theater categories. Adjusted operating income jumped 25.2% to $298 million while adjusted margin expanded 80 basis points (bps) to 3.8%.

International segment revenues rose 0.3% to $616 million, primarily on the back of 4% rise in comparable sales growth both in Canada and Mexico.

The segment's adjusted gross profit fell 5% to $151 million in the quarter and gross margin contracted 140 bps to 24.5%. Adjusted operating profit came in at $2, flat year over year. Adjusted operating income margin came in at 0.3%, which is also flat year on year.

Other Financial Details

Best Buy ended the quarter with cash and cash equivalents of $1,651 million, long-term debt of $1,302 million and total equity of $4,499 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 first quarter, the company repurchased 8.1 million shares for $373 million.

Guidance

For the fiscal 2018, management forecasts Enterprise revenues (including 53rd week) growth of 2.5%, up from the prior guidance of 1.5%. On a 52-week basis, the company anticipates adjusted operating income growth rate in the range of 1.5-5.5%. On the 52-week basis, it expects enterprise revenues to be up 1%, compared with flat year over year guided earlier.

For second-quarter fiscal 2018, management anticipates Enterprise revenues between $8.6 billion and $8.7 billion, and comparable sales increase of 1.5-2.5%. Management also projects earnings in the range of $0.57-$0.62 a share.

Also in the fiscal second quarter, the company expects domestic comparable sales to rise in the range of 1.5-2.5%, while international comparable sales are projected to be in the range of flat to up 3.0%. Enterprise comparable sales are projected to be in the range of 1.5-2.5%.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend for fresh estimates. There have been six revisions higher for the current quarter compared to two lower.

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 nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'D'. 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.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. The stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.

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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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