Despite posting solid results for the second quarter, Best Buy Co. (BBY) pulled back after its earnings announcement on Tuesday morning. If you remember, I featured BBY as one of my top retail plays last week.
So, what happened? What is spooking investors right now? For all of the details, continue reading…
At a glance, Best Buy had an excellent second quarter. Compared with Q2 2017, revenue climbed 4.9% to $9.38 billion. This beat the $9.28 billion consensus estimate by 1.1%. Sales at stores open a year or longer rose 6.2%.
Meanwhile, earnings jumped 28% to $0.86 per share. Excluding special items, adjusted earnings came in at $0.91 per share. Analysts were expecting adjusted earnings of $0.83 per share, so Best Buy posted a 9.6% earnings surprise.
As strong as these results were, there were two number that spooked investors. Last quarter, domestic online sales rose 10.1%. That was a hair lower than the 12% growth logged in the first quarter. Wall Street didn’t like that Best Buy’s online sales slowed down.
Also, Best Buy’s third-quarter earnings guidance is below the Street view. The company expects adjusted earnings of $0.79 to $0.84 per share, while analysts are calling for $0.92 adjusted EPS. However, Best Buy’s sales outlook of $9.4 billion to $9.5 billion is still in line with the consensus estimate of $9.49 billion in sales.
And while Best Buy guided below earnings expectations for one quarter, it lifted its full-year outlook. It now expects comparable sales growth of 3.5% to 4.5%, up from its prior guidance of flat to 2.0% growth.
The retailer expects adjusted earnings to range between $4.95 and $5.10 per share. Previously, Best Buy was expecting adjusted earnings of $4.80 to $5.00 per share. The revised guidance is above the Street view of $5.02 EPS.
The bottom line is that Best Buy is still looking great for the long haul.
I think this is an overreaction to an otherwise excellent report. BBY shares had been climbing higher leading up to this announcement, so investors are clearly using this as an excuse to take profits. So while it’s frustrating that BBY pulled back, I expect that it will rebound in the coming days.
So, my opinion about BBY hasn’t changed—it’s still a “best buy,” in my book. I recommend buying BBY on the dip.