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Why Best Buy Stock Dropped Today

Steve Symington, The Motley Fool

What happened

Shares of Best Buy (NYSE: BBY) sank 8% today after the electronics retailer announced mixed second-quarter 2019 results. 

Quarterly revenue climbed 1.7% year over year to roughly $9.54 billion, translating to a 19% increase in adjusted earnings per share to $1.08. Analysts, on average, were modeling lower EPS of $0.99, but on slightly higher revenue of $9.56 billion. 

Red stock market arrow chart indicating losses.

Image source: Getty Images.

So what

CEO Corie Barry praised the company's 1.6% comparable-store sales growth, and credited its outsized profits to expanding gross margin and "disciplined expense management."

But CFO Matt Bilunas also noted that the company is updating its full-year guidance due to a combination of its strong earnings, recently announced tariffs on imported goods from China, and "general uncertainty" surrounding consumers' buying behavior in the second half.

Now what

For the fiscal third quarter, Best Buy sees revenue arriving between $9.65 billion and $9.75 billion, with adjusted EPS of $1.00 to $1.05. Here again, most analysts were looking for lower third-quarter earnings of $0.94 per share on higher revenue of $9.79 billion.

As such, Best Buy is now targeting full-year revenue of $43.1 billion to $43.6 billion (narrowed from $42.9 billion to $43.9 billion previously), assuming comps growth of 0.7% to 1.7% (narrowed from 0.5% to 2.5% before). On the bottom line, that should translate to adjusted EPS of $5.60 to $5.75, which marks an increase from its old target range of $5.45 to $5.65.

Still, Best Buy can't cut costs forever. With shares up nearly 30% year to date -- and until the company can show more tangible proof of reaccelerating top-line growth -- it's no surprise to see the stock pulling back in response.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com