Best Buy (BBY) Stock Down On Q3 Earnings, Revenues Miss

Best Buy Company, Inc. (NYSE:BBY) reported lower-than-expected results in third-quarter fiscal 2018. We noted that the company’s earnings missed the Zacks Consensus Estimate after beating the same in the preceding 19 quarters in a row. Following the results, the company’s shares are down nearly 3% in the pre-market trading session. However, the stock has surged 24.5% in a year, outperforming the industry’s rally of 22.1%.

The company posted adjusted earnings per share of 78 cents from continuing operations, lagging the Zacks Consensus Estimate by a penny. However, the bottom line increased 30% year over year, which came as a big boost to investors.

The company also missed revenue estimates after surpassing the same in the trailing two quarters. However, the top line increased 4.2% year over year to $9,320 million but missed the consensus mark of $9,353 million. Enterprise comparable-store sales (comps) were up 4.4% compared with a gain of 1.8%. reported in the prior-year period.

The company’s lower-than-expected performance were due to lack of new launches of mobile, which impacted the revenues by $100 million and the blows of hurricanes in south Texas, Florida, Puerto Rico and Mexico. These factors affected the overall revenues by 15 to 20 basis points and the earnings per share by nearly 3 cents.

Adjusted operating profit came in at $348 million, up 11.2% year over year. While adjusted operating margin was 3.7% in comparison to 3.5% a year ago.

Segment Details

Domestic segment revenues gained 3.6% year over year to $8,491 million, primarily owing to 4.5% increase in comparable sales, further partially offset by a revenue loss from 10 large-format as well as 44 Best Buy Mobile store shutdowns.

Domestic comparable-online sales grew 22.3 % to $1.1 billion. This upside was driven by an increase in average order value and conversion rates.

The segment’s adjusted gross profit rose 3.8% to $2,096 million during the quarter. Adjusted gross margin came in at 24.7%, flat year over year. Adjusted operating income jumped 15% to $345 million while adjusted operating income margin expanded 40 basis points (bps) to 4.1%.

International segment revenues climbed 10.1% to $829 million, primarily on the back of 3.8% rise in comparable sales growth both in Canada and Mexico and a favorable foreign currency impact of 530 basis points.

The segment’s adjusted gross profit inched up 0.5% to $184 million in the reported quarter and adjusted gross margin contracted 210 bps to 22.2%. Adjusted operating profit came in at $3 million compared with $13 million reported in the year-ago quarter. Adjusted operating income margin came in at 0.4%, down 130 bps.

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

Other Financial Details

Best Buy ended the quarter under review with cash and cash equivalents of $1,103 million, long-term debt of $784 million and total equity of $4,152 million.
On Mar 1, 2017, the board of directors announced a plan to repurchase shares worth $3 billion over the next couple of years. In the fiscal second quarter, the company repurchased 6.4 million shares for $367 million.

Guidance

Despite missing both the top and the bottom line in the reported quarter, the company raised its fiscal 2018 guidance. For fiscal 2018, management forecasts Enterprise revenue (including 53rd week) growth of 4-4.8%, up from the prior projection of 4%. The company anticipates adjusted operating income (including 53rd week) growth rate in the 7-9.5% range, up from the earlier guided range of 4-9%. Meanwhile, on a 52-week basis, the company expects enterprise revenues and adjusted operating income growth of 3% and 2-6.5%, respectively.

For fourth-quarter fiscal 2018, management anticipates Enterprise revenues between $14.2 billion and $14.5 billion, and a comparable sales increase of 1-3%. Management also projects adjusted earnings in the band of $1.89-$1.99 cents a share. The Zacks Consensus Estimate is pegged at $2.03.

Also in the fiscal fourth quarter, the company expects domestic comparable sales to rise in the range of 1-3%, while international comparable sales are estimated in the band of flat to up 3%.

Best Buy carries a Zacks Rank #3 (Hold).

Interested in the Retail Space? Check These

Some better-ranked stocks worth considering from the retail space are American Eagle Outfitters, Inc. (NYSE:AEO) , Boot Barn Holdings, Inc. (NYSE:BOOT) and Shoe Carnival (LON:CCL), Inc. (NASDAQ:SCVL) , each carrying a Zacks Rank #2 (Buy). You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Eagle Outfitters delivered an average positive earnings surprise of 3.9% in the trailing four quarters and has a long-term earnings growth rate of 8.7%.

Boot Barn Holdings has an impressive long-term earnings growth rate of 15.7%.

Shoe Carnival delivered an average beat of 20% in the last four quarters and has a long-term earnings growth rate of 12%.

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