Why a Best Buy Earnings Beat Is Making Shareholders Unhappy

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Best Buy Co. Inc. (NYSE: BBY) reported first-quarter fiscal 2019 results before markets opened Thursday. The big-box retailer of electronics gear posted adjusted diluted earnings per share (EPS) of $0.82 and $9.11 billion in revenues. In the same period a year ago, Best Buy reported EPS of $0.60 on revenue of $8.53 billion. First-quarter results also compare to consensus estimates for EPS of $0.74 and $8.73 billion in revenue.

Enterprise-wide same-store sales rose 7.1% year over year in the quarter, and domestic sales rose by the same amount. Domestic online sales rose 12.0% for the quarter and international online sales rose by 6.4%. Total domestic sales account for about 92% of Best Buy’s revenues.

In the first quarter, the company returned $528 million to shareholders. Dividend payments totaled $128 million and share buybacks totaled $400 million (5.6 million shares). The company said in March that it expects to spend at least $1.5 billion on share buybacks this year.

The company’s chief financial officer, Corrie Barry, said:

Our Q2 guidance reflects our expectations for continued momentum in the business as well as lapping strong comparable sales last year. It also reflects continued investments in our long-term strategy such as supply chain and the launch of Total Tech Support. Because it is early in the year, we are not yet updating our previously provided full-year outlook.

Best Buy guided second-quarter 2019 EPS in a range of $0.77 to $0.82 and enterprise revenues between $9.1 billion and $9.2 billion. Same-store sales are forecast to rise 3% to 4%. Analysts were expecting second-quarter EPS of $0.82 on sales of $9.06 billion.

In its guidance for fiscal year 2019, the company reiterated its previous guidance. Best Buy expects enterprise revenues to total between $41 billion and $42 billion, enterprise same-store sales flat to up 2% and adjusted EPS of $4.80 to $5.00, an increase of 9% to 13%. Analysts were estimating EPS for the year at $4.97 on revenues of $41.77 billion.

Best Buy said domestic online revenues totaled $1.14 billion and represents 13.6% of total domestic revenues. Domestic same-store sales growth was driven by mobile phones, appliances, computing, tablets and smart home.

Second-quarter earnings guidance is soft and even though revenues are guided above estimates, the difference is not enough to make investors swoon, and that’s what’s needed these days.

Following the earnings announcement, shares initially bounced higher then reversed course to trade down nearly 2% to $74.50, in a 52-week range of $51.61 to $79.90. The consensus 12-month price target was $75.68 before results were announced, with a high target of $89.00.