Best Buy proving that work-from-home life has changed its earnings power, maybe forever
By this point in the COVID-19 pandemic, Best Buy was supposed to be headed back to the days of Best Buy of old — reasonable levels of sales and earnings growth as people bought tech gear only when really needed or around a cool product launch.
But that hasn't happened, actually quite the contrary.
With work life likely changed forever because of the pandemic — at the very least well into 2022 judging by pushed out return-to-office dates from the likes of Apple and others — Best Buy appears to be settling into new, higher top and bottom line growth rates. That reflects the evolved relationship between humans and tech gear, namely a desire to constantly upgrade what you have in the home office to improve productivity or replace what you already own because it wears out.
The way Best Buy sees it — and it's a correct view — the installed based of consumer electrics continues to expand given the myriad of fresh-use cases on the part of consumers.
"We definitely are seeing more penetration because people have consumer electronics for multiple locations and use cases in their lives. In the hybrid work model, I might have one set up at home. I might have one set up. And so you've seen this deeper penetration in people's homes and lives," Best Buy CEO Corie Barry told analysts on an earnings call on Tuesday.
The improved penetration of consumer electronics in households led to double-digit same-store sales gains in each of Best Buy's U.S. product categories. In turn, Best Buy was able to parlay that strong sales volume into much better than expected earnings even as it raised hourly wages for workers, dealt with supply chain inflation and toyed around with new store prototypes.
Here is how Best Buy performed in the second quarter compared to Wall Street analyst estimates:
Net Sales: $11.85 billion vs. $11.55 billion
Same-Store Sales: +19.6% vs. +18.4%
Diluted EPS: $2.98 vs. $1.87
Best Buy also struck a more bullish tone on its outlook for the full year:
Net Sales: $51 billion to $52 billion (consensus: $49.4 billion)
Same-Store Sales: +9% to 11% (previous: +3% to +6%; consensus: +6.74%)
Shares of Best Buy rose nearly 9% on the results as investors rerated the stock for the new normal the company has potentially entered. The stock is about two points away from its intraday record high hit on Nov. 2, 2020, per Yahoo Finance Plus data.
The different fundamentals of the Best Buy of today compared to pre-pandemic — and how they stand to shape future earnings — aren't lost on Wall Street.
"New customers are younger, female, and slightly lower income than pre-pandemic. With millennials the largest customer cohort and showing favorable repeat metrics, we see higher wallet share ahead," said Jefferies analyst Jonathan Matuszewski after Best Buy's earnings report. The analyst rates Best Buy's stock at a Buy.
Added Matuszewski, "Implied second half guidance exiting 1Q looked conservative to us, and recent momentum has management warming up to a blue-sky scenario where comparable sales growth could be flat with last year's challenging compares."
Full disclosure, this journalist recently purchased a second computer monitor from Best Buy in a bid to improve the home office setup. I needed two new wires to hook it all up. Instant productivity boost (I'm already eyeing a third monitor), and I am unlikely alone in the world in this undertaking.
Looked at another way, I just helped grow the installed base of consumer electronics.
And this underscores why Best Buy's stock is getting rerated Tuesday, a deserved rerating no less.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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