What Best Buy’s Q3 Earnings Promise for Holiday Sales, Profits

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Best Buy Co. Inc. (NYSE: BBY) reported fiscal 2020 third-quarter results before markets opened Tuesday morning. The big-box retailer of electronics gear reported adjusted diluted earnings per share (EPS) of $1.13 and $9.76 billion in revenues. In the same period a year ago, Best Buy reported EPS of $0.93 on revenue of $9.59 billion. Third-quarter results compare to consensus estimates for EPS of $1.03 and $9.7 billion in revenue.

Enterprise-level same-store sales rose 1.7% year-over-year in the quarter and domestic sales rose by 2%. In the company’s international segment, same-store sales fell by 1.9% in the quarter. Domestic online sales rose by 15% to $1.4 billion.

The largest comparable sales growth drivers were appliances, headphones, tablets, services, and computing. These item categories were partially offset by declines in the gaming and home theater categories.

Best Buy raised its full-year adjusted EPS guidance from a prior range of $5.60 to $5.75 to a new range of $5.81 to $5.91. Fiscal year revenue is now forecast in a range of $43.2 to $43.6 billion, up by $100 million at the low end of the range and enterprise same-store sales are projected to rise by 1% to 2%, up by 0.3 percentage points at both ends. In the fourth quarter, the company forecast adjusted EPS of $2.65 to $2.75 and revenue of $14.75 to $15.15 billion.

Analysts had projected fourth-quarter EPS of $2.65 and revenue of $15 billion with full-year estimates calling for EPS of $5.74 and revenue of $43.38 billion.

The company’s CFO, Matt Bilunas, said:

The updated FY20 guidance we are providing today reiterates our prior revenue expectations and raises the non-GAAP EPS range to reflect the strong Q3 profitability as well as improved expectations for Q4. Our outlook continues to include our best estimate of the impact of tariffs on goods from China, both implemented and planned.

In the third quarter, Best Buy repurchased $368 million in the company’s stock and paid $131 million in dividends. For the first three quarters of the fiscal year, the company has returned $1.09 billion to shareholders of which $696 million came in the form of buybacks and $398 million was paid in dividends.

Domestic gross profit rate ticked down year over year, from 24.4% to 24.3%. Best Buy said the decline was primarily driven by mix into lower-margin products, partially offset by the impact of GreatCall’s higher gross profit rate..

Shares traded up about 4.3% at $77.45, in a 52-week range of $47.72 to $78.53. The consensus 12-month price target was $77.24 before results were announced. The stock closed at $74.25 on Monday.

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