Best Buy (BBY) Up 4.1% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Best Buy (BBY). Shares have added about 4.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Best Buy due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Best Buy Q1 Earnings & Sales Beat Estimates, Down Y/Y

Best Buy reported robust first-quarter fiscal 2021 results, wherein the top and the bottom line surpassed the Zacks Consensus Estimate. Notably, this marked the 10th straight quarter of earnings beat. However, earnings and sales declined year over year due to the impacts of the coronavirus outbreak and the resulting change in operating model.

In the wake of the coronavirus outbreak, the company closed all stores across North America by mid-March. On Mar 22, the company proactively shifted to a contactless curbside-only operating model for all its Domestic stores on a temporary basis. This helped the company to retain nearly 80% of last year’s sales in the last six weeks of the quarter, despite store closures. On Apr 27, the company resumed services like large product delivery, in-home installations and repairs in about 80% of U.S. ZIP codes for new orders.

Starting the fiscal second quarter, on May 4, the company began operating stores, following strict social distancing practices and use of protective gear. It currently has 700 stores (nearly 70%) operating in this format. Further, the company is evaluating additional changes, including increasing store hours and opening some stores beyond its current appointment-only model.

Let’s Delve Deeper

This consumer electronics retailer’s adjusted earnings per share of 67 cents surpassed the Zacks Consensus Estimate of 41 cents. However, the bottom line declined 34.3% year over year.

On a GAAP basis, earnings per share came in at 61 cents, down 37.8% from the year-ago quarter.

The company’s Enterprise revenues declined 6.3% year over year to $8,562 million but beat the consensus mark of $8,149 million. Enterprise comparable sales were down 5.3% compared with 1.1% growth recorded in the prior-year quarter.

Moreover, the company recorded gross profit of $1,965 million, down 9.4% year over year. Also, gross margin contracted 70 basis points (bps) to 23%. Further, adjusted operating income dropped 28.8% to $250 million with adjusted operating margin contraction of 90 bps to 2.9%.

Segment Details

Domestic segment revenues declined 6.7% year over year to $7,915 million, owing to decline in comparable sales and loss of revenues due to store closures in the past year. The segment’s comparable sales declined 5.7% as a result of declines in sales of home theater, mobile phones, digital imaging and services, partly negated by growth in computing and gaming.

Meanwhile, comparable online sales at this division increased 155.4% to $3.34 billion, mainly owing to higher traffic and conversion rates. As a percentage of overall Domestic revenues, online revenues grew by a substantial 2,680 bps to 42.2% compared with 15.4% recorded in the prior-year quarter.

However, the segment’s gross margin contracted 70 bps year over year to 23% due to higher supply chain costs due to higher mix of online revenue.

International segment revenues decreased 2.1% to $647 million, mainly owing to the unfavorable impact of foreign currency to the tune of approximately 320 bps, offset by revenue gains from new stores opened in Mexico in the past year. Also, the company recorded comparable sales increase of 0.2%. The segment’s gross margin contracted 190 bps to 22.3%, mostly due to lower mix of high-margin services revenues and higher supply chain costs due to increased online revenue mix in Canada.

Other Financial Details

Best Buy ended the quarter with cash and cash equivalents of $3,919 million, long-term debt of $621 million and total equity of $3,410 million. In the fiscal first quarter, the company returned about $203 million to shareholders via share buybacks of $62 million and dividend payouts of $141 million.

In addition, the company’s board of directors approved a quarterly dividend of 55 cents per share. The dividend will be paid out on Jul 2, to shareholders of record as on Jun 11. However, the company had suspended all share repurchases on Mar 21, as part of its efforts to preserve liquidity amid the coronavirus crisis.

How Have Estimates Been Moving Since Then?

Estimates review followed an upward path over the past two months. The consensus estimate has shifted 10.6% due to these changes.

VGM Scores

Currently, Best Buy has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Best Buy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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