Best Buy (BBY) Rides High on Strategic Efforts: Apt to Hold

·4 min read

Best Buy Co., Inc. BBY appears to be a consistent performer, thanks to its robust business strategies. Management focuses on improving its digital capabilities including boosting its omnichannel services, such as buy online and pickup in store services.

In fact, the company’s digital efforts ever since the outbreak of the pandemic to cater to consumers’ necessities are commendable. The company also deepens its customer engagement with more in-home consultations and installations.

Buoyed by the aforesaid tailwinds, shares of this electronics retailer have gained 9.7% in the past six months compared with the industry’s 1.5% rise.

Delving Deeper

With respect to the omnichannel capabilities, Best Buy provides convenient pickup options like in-store pickup, curbside pickup, lockers and alternate pickup locations. The company’s consultation service, which supports customers with personalized tech needs, has been gaining traction along with next-day delivery on several items and convenience store and curbside pickup options. In fiscal 2023, digital sales accounted for 33% of the domestic revenues versus 19% in fiscal 2020. Sales via phone, chat and virtual also remained sturdy. Over 40% of the online revenues are picked up in the stores.

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In addition, management is focused on making significant investments in technology capabilities, such as data and analytics, and cloud migration to drive scale, efficiency and effectiveness. Management continues making investments in the stores and elevating unique experiences. The company has been testing various store formats and operating models. Also, it is focused on refreshing its U.S. store portfolio in the long term. For fiscal 2024, it intends to close 20-30 large format stores with eight experienced stores remodels and introduce ten additional stores.

Overall, management is focused on evolving its omnichannel retail model, developing customer relationships via membership, growing Best Buy Health, increasing efficiency via removing expenses and cracking reverse secondary market opportunities. It started an enterprise-wide restructuring initiative to efficiently align the spending with key strategies and operations along with optimizing the cost structure.

Best Buy is constantly conducting various tests and pilots to become a more customer-centric, digitally focused and efficient company. The company’s annual membership program, Best Buy Totaltech, provides customers with tech support from Geek Squad agents, exclusive member prices on merchandise, up to 24 months of product protection on most purchases, free delivery and installation, and an extended 60-day window for returns and exchanges, among other features. In fiscal 2024, it expects the membership program changes, including My Best Buy changes, to boost nearly 25 basis points of enterprise operating income rate expansion, mainly in the back half of the fiscal year.

The company is making significant headway in the health and beauty category. To this end, management launched a skincare technology product across the company’s stores and online. In the health business category, the company has launched over-the-counter hearing aids in stores and online, with a new online hearing assessment tool. The company is also focused on Care at Home solution, which leverages current health, the company’s major technology platform bringing together remote patient monitoring, telehealth, a complete support model and patient engagement into a single solution for healthcare providers and pharmaceutical organizations.

Bottom Line

Wrapping up, Best Buy seems well-poised to tap growth opportunities, given its solid tech-agnostic drives. While the aforesaid efforts are likely to drive sales, the company’s earnings status looks no less favorable. It delivered an earnings surprise of 20% in the trailing four quarters, on average.

The Zacks Consensus Estimate for Best Buy’s earnings per share is currently $7.15 for fiscal 2025, mirroring growth of 14.5% year over year. An expected long-term earnings growth rate of 8% coupled with a VGM Score of A further speaks volumes for this Zacks Rank #3 (Hold) stock.

Solid Picks in Retail

We have highlighted three top-ranked stocks, namely Abercrombie & Fitch ANF, American Eagle Outfitters AEO and Boot Barn BOOT.

Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and EPS suggests growth of 1.6% and 33.1%, respectively, from the year-ago reported figures. ANF delivered a negative earnings surprise of 141.3% in the last reported quarter.

American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank #2 (Buy). AEO delivered an earnings surprise of 23.3% in the last reported quarter.

The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year sales and EPS suggests growth of 3.4% and 3.2%, respectively, from the year-ago reported figures.

Boot Barn, a fashion retailer of apparel and accessories, currently carries a Zacks Rank of 2. The company has a trailing four-quarter earnings surprise of 8.7%, on average.

The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and EPS suggests growth of 8.2% and 9.1%, respectively, from the year-ago reported figures.

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