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Why Is Best Buy (BBY) Down 4.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Best Buy (BBY). Shares have lost about 4.6% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Best Buy due for a breakout? 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 drivers.

Best Buy's Q2 Earnings Beat, Comparable Sales Fall 12.1%

Best Buy posted mixed results for second-quarter fiscal 2023 results, wherein the top line lagged the Zacks Consensus Estimate but the bottom line beat the same. Both sales and earnings decreased year over year.

Best Buy’s adjusted earnings of $1.54 per share beat the Zacks Consensus Estimate of $1.29. The bottom line decreased from $2.98 recorded in the year-ago fiscal period.

Enterprise revenues declined 12.8% from the last fiscal year’s quarterly number to $10,329 million, lagging the Zacks Consensus Estimate of $10,432 million. Enterprise comparable sales dropped 12.1% against 19.6% growth seen in the year-ago fiscal quarter.

Gross profit declined 18.6% to $2,287 million, while gross margin contracted 160 basis points (bps) to 22.1%. Operating income came in at $28 million, down 42.9% from the year-ago quarter’s level. Adjusted operating margin shrank 280 bps to 4.1%.

We note that adjusted SG&A expenses fell 6.3% to $1,882 million, while as a percentage of revenues, the same increased 120 bps to 18.2%.

Segment Details

Domestic segment revenues fell 8.7% to $9,894 million. This decline from the last fiscal year’s quarterly reading was mainly induced by a comparable sales decrease of 8.5%. From a merchandising perspective, comparable sales decreased in almost all categories.

Domestic online revenues of $2.97 billion declined 14.7% from the last fiscal year’s quarterly tally on a comparable basis. As a percentage of total Domestic revenues, online revenues were 31% compared with last year’s 31.7%.

Segment adjusted gross profit rate decreased 170 basis points to 22% due to lower services margin rates with pressures related to Best Buy’s Totaltech membership offering, reduced product margin rates and increased supply-chain costs. This was partly offset by increased profit-sharing revenues from its private label and co-branded credit card arrangement.

Moving on to the International segment, revenues fell 9.3% to $760 million, mainly due to a comparable sales decline of 4.2% in Canada and adverse foreign currency translations to the tune of 420 bps. The segment’s gross profit rate decreased 90 bps to 23.4%, induced by lower product margin rates.

Other Details

Best Buy ended the quarter with cash and cash equivalents of $840 million, long-term debt of $1,170 million and a total equity of $2,767 million.

During the quarter, BBY returned about $208 million to its shareholders via share repurchases of $10 million and dividends worth $198 million. Year to date, Best Buy has returned a total of $862 million to its shareholders via share repurchases of $465 million and dividends worth $397 million. Management paused share repurchases in the fiscal third quarter.

Guidance

For fiscal 2023, management envisions a comparable sales decline of about 11% and an adjusted operating income rate of nearly 4%. For the fiscal third quarter, it forecasts comparable sales to drop slightly above the 12.1% decline seen in the reported quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -22.99% 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. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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