Best Buy Discovers the Price of Honesty

Best Buy Co. Inc. (NYSE: BBY) reported fiscal 2021 second-quarter results before markets opened Tuesday. The big-box retailer of electronics gear posted adjusted diluted earnings per share (EPS) of $1.71 and $9.91 billion in revenues. In the same period a year ago, Best Buy reported EPS of $1.08 on revenue of $9.54 billion. Second-quarter results also compare to consensus estimates for EPS of $1.08 and $9.71 billion in revenue.

U.S. online revenue increased by 242% year over year to $4.85 billion, representing 53% of total domestic revenue ($9.13 billion) for the quarter.

Same-store sales rose by 5% year over year, including the loss of revenue from 25 stores that had closed over the course of the past 12 months.

While Chief Executive Officer Corrie Barry talked up the improved numbers for the quarter, Chief Financial Officer Matt Bilunas warned investors that the company does not expect quarter-to-date sales growth of 20% to continue through all of the third quarter. SG&A expenses also will rise as all stores are now open.

U.S. sales were driven by computing, appliances and tablets, partially offset by declines in sales of mobile phones, digital imaging and services. Gross profit slipped from 24.0% a year ago to 22.8%, driven by higher supply chain costs.

Domestic SG&A expenses fell by nearly 3 percentage points, primarily the result of keeping stores open on an appointment-only basis for about six weeks. This lowered payroll expenses, advertising expenses, incentive compensation payments and medical claims expenses.

The company did not provide financial guidance for the third quarter, but analysts expect EPS of $1.13 on sales of $9.95 billion. For the full year, analysts are looking for EPS of $5.69 and revenue of $43.73 billion.

Investors took the stock down by around 7% Tuesday morning. It’s almost as if they think that the longer the pandemic lasts, the better the outlook for Best Buy. Barry commented that Best Buy was “encouraged” by customer demand for its products but that the company has “not lost sight of the fact that people continue to suffer” from COVID-19.

Barry is saying that Best Buy was lucky to be in a position to get people what they wanted and needed during an “unprecedented” time. Profits followed but maybe, she implies, getting through the pandemic is more important?

Best Buy stock traded down about 6.4% at $109.85 Tuesday morning, in a 52-week range of $48.11 to $119.48. The stock’s consensus 12-month price target s $104.70. Best Buy pays a dividend yield of 1.87%.