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

·5 min read

Best Buy Co., Inc. BBY 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.

Over the past six months, this presently Zacks Rank #5 (Strong Sell) stock has decreased 21.9% against the industry’s rise of 7.2%.

Q2 Details

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 $640 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.

Management authorized a quarterly cash dividend payment of 88 cents per share, payable Oct 11, 2022, to its shareholders of record as of Sep 20, 2022.

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.

3 Top Retail Stocks for You

We highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Tecnoglass TGLS, Ulta Beauty ULTA and CVS Health CVS.

Tecnoglass manufactures and sells architectural glass and aluminum products for the residential and commercial construction industries. TGLS 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 Tecnoglass’ current financial-year sales and earnings per share suggests growth of 28.2% and 47.7%, respectively, from the corresponding year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 24.4%, on average.

Ulta Beauty, a leading beauty retailer in the United States, currently has a Zacks Rank #2 (Buy). ULTA has a trailing four-quarter earnings surprise of 49.8%, on average.

The Zacks Consensus Estimate for Ulta Beauty’s current financial-year sales suggests growth of 10.4% from the corresponding year-ago reported figure. ULTA has an expected EPS growth rate of 10.7% for three-five years.

CVS Health, a pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care, currently has a Zacks Rank of 2. CVS has a trailing four-quarter earnings surprise of 6.7%, on average. Shares of CVS have risen 7% in the past three months.

The Zacks Consensus Estimate for CVS Health’s current financial-year sales and earnings per share suggests growth of 6.6% and 1.1%, respectively, from the corresponding year-ago reported numbers. CVS has an expected EPS growth rate of 7.7% for three-five years.


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