A month has gone by since the last earnings report for Best Buy (BBY). Shares have added about 3.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Best Buy due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Best Buy Q4 Earnings & Sales Beat Estimates
Best Buy Company, Inc. posted impressive fourth-quarter fiscal 2019 results, wherein both the top and bottom lines exceeded the Zacks Consensus Estimate for the fifth straight quarter. The company also witnessed decent comparable sales growth in the reported quarter.
This consumer electronics retailer posted fiscal fourth-quarter adjusted earnings per share of $2.72 per share, surpassing the Zacks Consensus Estimate of $2.57. Moreover, the bottom line improved 12% year over year on account of increased operating profit, share repurchases made and lower effective tax rate, partially offset by the absence of extra week this year.
On a GAAP basis, earnings came in at $2.69, up more than two-folds from the year-ago quarter.
The top line decreased nearly 3.7% year over year to $14,801 million, however, the metric trumped the consensus mark of $14,714.9 million. Enterprise comparable sales were up 3% compared with 9% in the prior-year quarter.
We note that the company has been progressing well with its Best Buy 2020: Building the New Blue initiative by enhancing the In-Home Advisor program and launching its Total Tech Support members.
However, adjusted operating profit came in at $994 million, up 1.2% year over year. Also, adjusted operating margin expanded 30 basis points (bps) to 6.7%.
Domestic segment revenues fell 3.5% year over year to $13,497 million owing to an extra week of revenues recorded in the prior-year quarter. It also included the loss of revenue due to the shutdown of 12 large-format and 257 Best Buy Mobile stores in the past year. The company witnessed comparable sales growth of 3%, driven by robust demand in wearable devices, gaming consoles and appliances, partly offset by softness in the mobile phone category. In addition, comparable-online sales at this division increased 9.3% to $2.96 billion, mainly stemming from higher traffic and conversion rates.
The segment’s gross profit declined 4.1% to $2,985 million, while adjusted gross margin came in at 22.1%, down 20 bps year over year. Further, adjusted operating income inched up 0.7% to $903 million with operating margin expanding 30 bps to 6.7%.
International segment revenues slipped 5.2% to $1,304 million due to an extra week of revenues recorded in the prior-year quarter, along with unfavorable impact of foreign currency. The company recorded comparable sales growth of 2.5% in the reported quarter.
The segment’s gross profit dipped 3.2% to $298 million in the reported quarter but adjusted gross margin expanded 50 bps to 22.9%. Adjusted operating income came in at $91 million, up from adjusted operating profit of $85 million in the year-ago quarter.
Other Financial Details
Best Buy ended the quarter with cash and cash equivalents of $1,980 million, long-term debt of $1,332 million and total equity of $3,306 million. In the fiscal fourth quarter, the company returned about $482 million to its shareholders via buybacks of $361 million and dividends of $121 million. Moreover, it returned $2 billion via share repurchases of $1.5 billion and dividends of $497 million during fiscal 2019. Management raised the quarterly dividend by 11% to 50 cents a share. The company intends to buy back shares worth of $750 million to $1 billion in fiscal 2020.
Management provided its outlook for fiscal 2020, wherein it guided the bottom line to be $5.45-$5.65, up from $5.32 reported in fiscal 2019. Management forecasts Enterprise revenues of $42.9-$43.9 billion compared with $42.9 billion reported in fiscal 2019. Furthermore, comps are expected to be up 0.5-2.5%, down from 4.8% recorded in fiscal 2019. This is due to anticipated cyclical slowdown of the console gaming category and the continued maturation of the mobile phone category. The company anticipates adjusted operating income rate of about 4.6%, flat with the fiscal 2019 level, on a 52-week basis. Meanwhile, it expects an effective tax rate of 24.5%.
For the fiscal first quarter, management anticipates Enterprise revenues of $9.05-$9.15 billion and comps to be flat to up 1%. Management projects adjusted earnings in the band of 83-88 cents. Also, it expects an effective tax rate of 22.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Best Buy has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Best Buy has a Zacks Rank #2 (Buy). We expect 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.