Best Buy (BBY) Q1 Earnings Beat Estimate, Sales in Line

Zacks Equity Research

Best Buy Company, Inc. BBY posted first-quarter fiscal 2020 results, wherein the bottom line exceeded the Zacks Consensus Estimate for the sixth straight time, while sales came in-line.  Results gained from decent comparable sales growth in the reported quarter. Also, the company has been progressing well with its Best Buy 2020: Building the New Blue initiative.

Despite reporting better-than-expected earnings, management retained its outlook for fiscal 2020 considering the recent increase in tariffs to 25% from 10% on products worth $200 billion imported from China. Also, it issued guidance for second-quarter fiscal 2020, wherein the bottom line is expected to be 95 cents to $1. The mid-point of 98 cents is above the Zacks Consensus Estimate of 97 cents.

We note that shares of this Zacks Rank #3 (Hold) company have gained 14.2% in the past three months compared with the industry’s growth of 8.1%.

Let’s Delve Deep

This consumer electronics retailer posted fiscal first-quarter adjusted earnings of $1.02 per share, surpassing the Zacks Consensus Estimate of 88 cents. Moreover, the bottom line improved 24% year over year.

On a GAAP basis, earnings came in at 98 cents, up 36.2% from the year-ago quarter.

The top line increased nearly 0.4% year over year and came in-line with the consensus mark of $9,142 million. Enterprise comparable sales were up 1.1% compared with 7.1% in the prior-year quarter.

However, adjusted operating profit came in at $351 million, up 16.2% year over year. Also, adjusted operating margin expanded 50 basis points (bps) to 3.8%.

Segment Details

Domestic segment revenues inched up 0.8% year over year to $8,481 million, driven by decent comps and contributions from the GreatCall acquisition. This was partly offset by decline in revenues due to the shutdown of 12 large-format and 105 Best Buy Mobile stores in the past year. The company witnessed comparable sales growth of 1.3%, backed by robust demand in wearable devices, tablets and appliances. In addition, comparable online sales at this division increased 14.5% to $1.31 billion, mainly stemming from higher traffic and average order values.

The segment’s gross profit advanced 2.4% to $2,009 million, while adjusted gross margin expanded 40 bps year over year to 23.7%. Further, adjusted operating income increased 15.2% to $349 million, with the operating margin expanding 50 bps to 4.1%.

International segment revenues decreased 5.2% to $661 million due to unfavorable impact of foreign currency to the tune of 390 bps. The company recorded comparable sales decline of 1.2% in the reported quarter.

The segment’s gross profit dipped 1.8% to $160 million in the reported quarter but adjusted gross margin expanded 80 bps to 24.2%. Adjusted operating income came in at $2 million, narrower than the adjusted operating loss of $1 million in the year-ago quarter.

Other Financial Details

Best Buy ended the quarter with cash and cash equivalents of $1,561 million, long-term debt of $1,193 million and total equity of $3,354 million. In the fiscal first quarter, the company returned about $232 million to its shareholders via buybacks of $98 million and dividends of $134 million. Moreover, it announced to buy back shares worth $750 million to $1 billion in fiscal 2020.

Guidance

Best Buy has reiterated its guidance for fiscal 2020. Management continues to forecast Enterprise revenues of $42.9-$43.9 billion compared with $42.9 billion reported in fiscal 2019. Furthermore, comps are still expected to be up 0.5-2.5%, down from 4.8% recorded in fiscal 2019.

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%. Adjusted earnings are still anticipated to be $5.45-$5.65 per share.

For the fiscal second quarter, management anticipates Enterprise revenues of $9.5-$9.6 billion and comps growth of 1.5-2.5%. Also, it expects an effective tax rate of 24.5%.

Best Buy Co., Inc. Price, Consensus and EPS Surprise

Best Buy Co., Inc. Price, Consensus and EPS Surprise

Best Buy Co., Inc. price-consensus-eps-surprise-chart | Best Buy Co., Inc. Quote

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