Best Buy Efforts Bode Well, International Sales A Concern

Best Buy Co., Inc. (NYSE:BBY) has been riding high on strategic initiatives, a solid earnings history, the “Renew Blue” program and shareholder-friendly moves. Well, as these inspire optimism, intense competition and sluggish international sales are dampeners.

Hidden Catalyst

Best Buy is making extensive investments to upgrade its operations with special focus on developing omni-channel capabilities and strengthening partnership with vendors. The company’s “Renew Blue” program achieved tremendous success in fiscal 2016. Under the phase two of the plan, which commenced the same fiscal year, the company intends to improve annualized operating income by $400 million over the next three years. The company has already reached the $250 million mark.

Best Buy is leaving no stone unturned to attract consumers and attain incremental revenues, as is evident from its strategic action of opening over 1,400 "Samsung (KS:005930) Experience Shops" within its stores. Taking the initiative a step further, Best Buy also rolled out LG Store” across 376 of its outlets in the second quarter of fiscal 2017. The company has 660 Samsung and 388 Sony stores.

All these endeavors, aided Best Buy to continue with its positive earnings surprise streak over the past 15 quarters. In the trailing four quarters, the company’s outperformed the Zacks Consensus Estimate by an average of 22%, including a positive surprise of 35.7% witnessed in the second quarter of fiscal 2017.

As regards shareholder friendly moves, Best Buy from time to time has been buying back shares, after resuming the same in the fourth quarter of fiscal 2015.

Hurdles to Cross

On the flip side, the major problem of Best Buy is sluggish international sales. International revenues had declined 22.1%, 25.6%, 29.2% and 26.2% in the first, second, third and fourth quarters of fiscal 2016, respectively. In the first and second quarters of fiscal 2017, international revenues declined 8.1% and 0.9%, respectively. In the second quarter, international sales were primarily marred by negative impact of foreign currency exchange rate. Also in the fiscal third quarter, the company expects international revenues in the range of flat to down 5%.

Another hurdle Best Buy needs to address is stiff competition during the upcoming holiday season from other players in the consumer electronic space.

Give the pros and cons embedded, Best Buy carries a Zacks Rank #3 (Hold).

Stocks to Consider

Stocks worth considering in the retail sector include Urban Outfitters Inc. (NASDAQ:URBN) with a Zacks Rank #1 (Strong Buy), and hhgregg, Inc. (NYSE:HGG) and American Eagle Outfitters, Inc. (NYSE:AEO) with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Urban Outfitters has an impressive long-term earnings growth rate of 15%.

Hhgregg shares have gained more than 13% in the past three months.

American Eagle Outfitters surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average earnings surprise of 9.3%.

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