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

Best Buy Company, Inc. BBY 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.

Markedly, shares of the company declined nearly 4% in the pre-market trading session on May 21. In the past three months, shares of this Zacks Rank #4 (Sell) company have declined 4.6% compared with the industry’s 21% slump.

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.

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

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

Best Buy Co., Inc. price-consensus-eps-surprise-chart | Best Buy Co., Inc. Quote

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 owing to 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.

Key Picks in Retail

Sprouts Farmers Market, Inc. SFM has a long-term earnings growth rate of 4.4% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General Corporation DG has a long-term earnings growth rate of 12.2% and a Zacks Rank #2 (Buy).

The Kroger Co. KR has a long-term earnings growth rate of 4.9% and a Zacks Rank #2.

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