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Best Buy (BBY) Q3 Earnings Beat Estimates, Online Sales Surge

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Zacks Equity Research
·4 min read
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In spite of a challenging backdrop, Best Buy Co., Inc. BBY registered stellar performance in third-quarter fiscal 2021. The top and the bottom lines surpassed the Zacks Consensus Estimate, resulting in the fifth straight quarter of sales and earnings beat. The metrics also improved year over year. This provider of technology products, services and solutions witnessed remarkable increase in Enterprise comparable sales. Notably, Domestic comparable online sales surged during the quarter.

Supply chain expertise, flexible store operating model and ability to shift quickly to digital aided the performance. The company witnessed increased demand for products that assist customers work, learn, cook, entertain and connect in their homes. Corie Barry, Best Buy CEO said, “From a profitability standpoint, our better-than-expected sales resulted in significant operating income rate expansion and earnings growth.”

Management stated that in spite of witnessing increased demand for the products and services at the start of the final quarter, it is still difficult to project whether these trends will persist, owing to the uncertainty related to the ongoing pandemic. The company also refrained from providing financial guidance.

Shares of this Richfield, MN-based company were down in the pre-market trading hours on Nov 24. So far in the year, shares of this Zacks Rank #3 (Hold) company have surged 39% compared with the industry’s rise of 16.4%.

Let’s Delve Deeper

Best Buy delivered adjusted earnings of $2.06 per share that surpassed the Zacks Consensus Estimate of $1.76, and increased substantially from $1.13 reported in the year-ago quarter. The bottom line gained from higher revenues.

Enterprise revenues rose 21% year over year to $11,853 million, and came ahead of the Zacks Consensus Estimate of $11,016.7 million. Enterprise comparable sales increased 23% compared with 1.7% growth recorded in the prior-year quarter. By category, comparable sales increased across Computing and Mobile Phones, Consumer Electronics, Appliances, Entertainment and Services.

We note that adjusted gross profit grew 20% to $2,831 million, however, adjusted gross margin contracted 30 basis points to 23.9%. Markedly, adjusted operating income came in at $728 million, up from $406 million reported in the year-ago quarter. Again, adjusted operating margin increased 190 basis points to 6.1%.

Segment Details

Domestic segment revenues increased 21% to $10,850 million. This year-over-year growth was mainly driven by comparable sales increase of 22.6%, partly offset by the loss of revenues from permanent store closures in the past year. The company registered comparable sales growth across most of its categories, with the largest drivers being computing, home theater and appliances. These were partly offset by a decline in mobile phone sales.

Meanwhile, comparable online sales soared 173.7% to $3.82 billion. As a percentage of overall Domestic revenues, online revenues rose to roughly 35.2% from 15.6% in the last year.

We note that the segment’s gross margin contracted 30 basis points year over year to 24% owing to higher supply chain costs because of the increased mix of online revenues and lower profit-sharing revenues from the company’s private-label and co-branded credit card arrangement. However, a favorable promotional environment partially offset these pressures.

International segment revenues jumped 25.4% to $1,003 million. This upside was backed by comparable sales growth of 27.3%, partly offset by the adverse impact of foreign currency exchange rates to the tune of 140 basis points. The segment’s adjusted gross margin expanded 10 basis points to 22.6%.

Other Financial Details

Best Buy ended the quarter with cash and cash equivalents of $5,136 million, long-term debt of $1,256 million and total equity of $4,086 million. During the quarter, the company returned a total of $142 million to shareholders via dividends.

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