North America

Earnings Preview: Best Buy Q2 2018 (BBY)

By: Craig Bowles

Overview

Best Buy Company, Inc. (BBY) is slated to report 2Q FY2018 earnings before the bell on Tuesday, August 29th. The earnings release is expected at approximately 7:00 a.m. ET followed by an 8:00 a.m. conference call available at Best Buy Investor Relations. The consumer electronics giant is widely seen as a key barometer on the health of the consumer and the economy. Its results therefore have a historic tendency to impact the broader market, including the CME index futures contracts and other broader market gauges.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Company guidance is $0.57 to $0.62. The Street estimate is $0.62. (source: Yahoo! Finance) Consensus was $0.59 three months ago.
  • Earnings Per Share (EPS): If an Adjusted/Non-GAAP EPS figure is not available, this value would compare with forecasts.
  • Revenues: Company guidance is $8.6 bln to $8.7 bln. Analysts expect $8.66 bln. Consensus was $8.48 bln three months ago.
  • Comparable Store Sales: Company guidance is 1.5% to 2.5%.
  • Non-GAAP Earnings Per Share (EPS) Guidance for 3Q 2018: The current Street estimate is $0.65 (range $0.58 to $0.69).
  • Revenue Guidance for 3Q 2018: The current Street estimate is $8.99 bln (range $8.79 bln to $9.12 bln).
  • Price/Earnings of 16.6 compares to a 5-year average 12.5; Price/Book of 4.1 compares to a 5-year average 2.5; and Price/Sales of 0.5 compares to a 5-year average 0.2; Price/Cash Flow of 8.4 compares to a 5-year average 7.1; Dividend Yield of 2.1% compares to a 5-year average 3.0%.
  • Analysts view Best Buy with 15 (9 three qtrs ago) Buy, 3 Hold, and 3 Sell ratings. (source: MarketBeat.com)
  • Best Buy insiders sold 169,064 shares over the last three months and 1,865,147 shares in the past year. (source: NASDAQ.com) In March 2017, the company announced a plan to repurchase $3 billion of shares within two years (up from the previous $1 billion over two years) and increased the quarterly dividend by 21% to 34c/share.
  • Best Buy results could impact other consumer electronics retailers. Amazon (AMZN) and Wal-Mart (WMT) have a growing presence in this area.
  • Best Buy shares have a 1-day average price change on earnings of 10.48%. Options are pricing in an implied move of 7.05% off earnings.

Recent News

  • 08/22: Piper Jaffray reiterated an Overweight rating on Best Buy while citing expectations for strong comps due to hhgregg’s liquidation in May, strong demand for the Nintendo Switch, and the delayed Samsung Galaxy S8 phone launch in April. TV units appear challenged, however, according to StreetInsider.com.
  • 08/08: Morgan Stanley lists Best Buy among those that are benefitting from low gasoline prices freeing up funds for other purchases, according to Barron’s.com.
  • 07/28: Best Buy’s Geek Squad will eliminate 399 positions, according to CNN.com.
  • 07/10: Best Buy’s Geek Squad has been a key advantage but Amazon is looking to expand their network of installation professionals, according to BusinessInsider.com.

Technical Review

At the end of 2016, Best Buy finally pushed through the $42.50 resistance that had been in place since 2009. A breakout after multiple years of consolidation is easy to underestimate in terms of duration and magnitude. The stock showed relative strength again this month when the general market pulled back and tested the 50-day moving average. Balance area support is centered around $57. (Chart courtesy of StockCharts.com)

Summary

Best Buy is among retailers that have benefitted from low gasoline prices. Comp sales are expected to benefit from hhgregg’s liquidation in May. Amid layoffs, their Geek Squad has been getting negative consumer reviews and is going to have to deal with competition from Amazon. Analysts appear to be more bullish overall despite some worries that the company has moved the focus away from efficiencies. Insider selling eased up after last quarter’s ramp up. The company has beaten estimates by an average of 19c the last four quarters. Estimize consensus for Non-GAAP EPS of $0.66 on revenue of $8.692 bln compares to analyst consensus of $0.62 on revenue of $8.66 bln. Guidance will factor into the market reaction, as well.

 

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