Why Best Buy’s Earnings Are Only Good Enough

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Best Buy Co. Inc. (NYSE: BBY) reported fiscal 2019 third-quarter results before markets opened Tuesday morning. The big-box retailer of electronics gear reported adjusted diluted earnings per share (EPS) of $0.93 and $9.59 billion in revenues. In the same period a year ago, Best Buy reported EPS of $0.78 on revenue of $9.32 billion. Third-quarter results compare to consensus estimates for EPS of $0.85 and $9.57 billion in revenue.

Enterprise level same-store sales rose 4.3% year-over-year in the quarter and domestic sales rose by the same amount. In the company’s international segment, same-store sales rose 3.7% in the quarter. Domestic online sales rose by 12.6% to $1.21 billion.

Best Buy raised its full-year adjusted EPS guidance from a prior range of $4.95 to $5.10 to a new range of $5.09 to $5.19. Fiscal year revenue is now forecast in a range of $42.5 to $42.9 billion and enterprise same-store sales are projected to rise by 4% to 5%. In the fourth quarter, the company forecast adjusted EPS of $2.48 to $2.58 and revenue of $14.4 to $14.8 billion.

Analysts had projected fourth-quarter EPS of $2.58 and revenue of $14.68 billion with full-year estimates calling for EPS of $5.11 and revenue of $42.76 billion.

In the third quarter, Best Buy repurchased 4.8 million shares of stock valued at $370 million and paid out $123 million in dividends. For the first three quarters of the fiscal year, the company has returned $1.52 billion to shareholders of which $1.14 billion came in the form of buybacks and $376 million was paid in dividends.

The company’s chairman and CEO, Hubert Joly, said:

Similar to the first half of the year, our topline performance was helped by a favorable environment and driven by how customers are responding to the unique and elevated experience we are building. … The holiday season is here, and our team has put together a best-in-class assortment, prepared an amazing set of deals, and ensured we have great inventory availability across all the product categories we carry. In addition, we have continued to enhance our digital shopping experience and further improved our shipping speed, allowing us to delight customers with fast and free delivery.

Best Buy expects third-quarter 2018 adjusted diluted EPS in a range of $0.75 to $0.80. Analysts are expecting third-quarter EPS of $0.65 on sales of $8.99 billion.

Domestic gross profit rate dipped slightly year over year, from 24.7% to 24.4%. Best Buy attributed the decrease to higher supply chain costs, including both investments and transportation, and the rollout of the company’s Total Tech Support offer.

Investors are likely to give the company a split decision on the report. Quarterly results were good, but the forecast, although raised, is only slightly better than prior expectations.

Shares traded up about 0.5% at $62.50, in a 52-week range of $55.82 to $84.37. The consensus 12-month price target was $78.22 before results were announced, with a high target of $90.00. The stock closed at $62.20 on Monday.