Best Buy (BBY) Rallies On Q4 Earnings Beat, Guides For FY19

Best Buy Company, Inc. BBY returned to positive earnings trend in fourth-quarter fiscal 2018 after reporting a miss in the preceding quarter. With this, the company has delivered a positive earnings surprise in 20 of 21 quarters. Moreover, the company surpassed sales estimates in the fourth quarter, which marked its third beat of the last four quarters.

The company’s solid results followed its announcement of closing 250 small mobile phone stores in the U.S. malls, which boosted investor sentiment. Sources revealed that the closures were announced to boost profitability and restore business in a competitive environment. The company expects to close down these stores effective May 31.

Driven by the solid results, the company’s shares surged as much as 4.6% in the pre-market trading session. Moreover, this Zacks Rank #2 (Buy) stock rallied nearly 20% in the last three months, outperforming the industry’s growth of 14.7%.

The company posted adjusted earnings per share of $2.42 from continuing operations, surpassing the Zacks Consensus Estimate of $2.05. Moreover, the bottom line increased 25% year over year, which came as a big boost to investors.

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

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

The top line increased nearly 14% year over year to $15,363 million and beat the consensus mark of $14,570.4 million. Enterprise comparable-store sales (comps) were up 9% against a decline of 0.7% reported in the prior-year period.

Comps growth mainly came on the back of smooth execution of the Best Buy 2020 Strategy, alongside improved product availability, rising consumer confidence and a favorable macro environment, a strong gaming category and a constructive competitive backdrop. Favorable comps in turn aided top and bottom-line performances.

Adjusted operating profit came in at $982 million, up 10.3% year over year. However, adjusted operating margin contracted 20 basis points to 6.4% due to an operating margin decline in the Domestic segment, which contributes nearly 90% of the company’s profitability.

Segment Details

Domestic segment revenues gained 13.4% year over year to $13,987 million, primarily owing to a 9% increase in comparable sales and contribution from the additional 53rd week. This was partially offset by a revenue loss from the shutdown of 18 large-format stores. Comps gained from growth across most categories, with particular strength in mobile phones, gaming, appliances, smart home, wearables and home theater.

Domestic comparable-online sales grew 17.9% to $2.8 billion. This upside was driven by an increase in average order value and conversion rates.

The segment’s adjusted gross profit rose 13.2% to $3,113 million, while adjusted gross margin came in at 22.3%, flat year over year. Adjusted operating income jumped 10.9% to $897 million. However, adjusted operating income margin contracted 20 bps to 6.4%.