Best Buy's growth: What investors should keep in mind

Best Buy (BBY) posted fourth quarter earnings that beat Wall Street expectations but issued softer-than-expected full-year guidance for fiscal year 2024. However, the retailer expects industry-wide sales to stabilize this year.

Morningstar Equity Analyst Sean Dunlop joins Yahoo Finance to discuss Best Buy's earnings and which of the company's distressed categories can expect an uptick in consumer spending.

When asked about what to expect for growth from Best Buy moving forward, Dunlop responds: "During the first two quarters, I would expect that we would see negative comparable store sales. The firm obviously continues to close stores at sort of a 1 to 2% annual clip. They plan to close another 10 to 15 this year. I think as we move into the back half of the year, Q3 is where we're starting to pencil in real growth year over year for Best Buy, and Q4, if we teased out the impact, they had an extra week in this last year's Q4, but if you tease that out, we would expect growth in the year to come. "

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

[AUDIO LOGO]

BRAD SMITH: Best Buy reporting fourth quarter sales that were better than feared, prompting the positive stock reaction. Enterprise-comparable sales declined 4.8% during the quarter, that's compared to estimates of 5.3% of a decline. The retailer also increasing its quarterly dividend. Overall, the business outlook anticipates industry sales stabilization this year.

Here with more, we've got Sean Dunlop who is the Morningstar Equity analyst here. Sean, thanks so much for taking some time here this morning. First and foremost, I want to get your read in on the report and if the worst is behind Best Buy

SEAN DUNLOP: Yeah, I would say pretty decent earnings all in. It was $14.65 billion in sales, which edged FactSet consensus. Adjusted earnings per share $2.72 was obviously better than consensus, better than our own estimate. I think more importantly is as we look forward, the firm had the confidence to raise its dividend that looked safe.

And negative 3% to flat comparable store sales for the year to come is positive. With a $169 million restructuring, the firm is looking at flat operating income margin for the year to come, which is quite a bit better than we'd expected and certainly better than you would expect given the sales environment that the firm still finds itself in. So on balance, looks like we're starting to hit some of those replacement cycles from the COVID pull forward. Could be that we're through the worst of this patch for Best Buy.

SEANA SMITH: So far through the worst of the patch and then when do you expect to see a return to growth? Is that something that you see playing out before the end of the year?

SEAN DUNLOP: Yeah, I think so. So during the first two quarters I would expect that we would see negative comparable store sales. The firm obviously continues to close stores at a 1% to 2% annual clip. They plan to close another 10 to 15 this year.

I think as we move into the back half of the year, Q3 is where we're starting to pencil in real growth year over year for Best Buy. And Q4, if we teased out the impact, they had an extra week in this last year's Q4. But if you teased that out, we would expect growth for the year to come.

BRAD SMITH: Where in the key categories that you're tracking are going to really prove that Best Buy can get back to some of its golden days, if you will? Because appliances, that still got hit hard in this most recent quarter and we're still looking across where the consumer environment actually leads some of the spending back into the categories that were distressed at least in this most recent Q4 here.

SEAN DUNLOP: Yeah, it's a great question. I think we're going to continue to see pressure in categories like appliances and home theater. Those have longer replacement cycles. So if people bought those in 2020 or 2021, they're not going to need to replace them in the near term here.

The other factor is obviously we've seen quite a bit of a slowdown in the housing market. There's natural replacement that occurs with that. So I think we'll probably see it first with laptops. The good news is we're starting to see that now. Best Buy cited positive unit volume over the most recent quarter within their sales base.

And there really wasn't a refresh. There weren't any new features. There wasn't much innovation that would drive an upgrade cycle, which means that that could be read into as just being a natural replacement cycle. So I think we'd see it in laptops first. I think as we move forward, we'll start to see it in phones and then it'll spill over into some of the other categories over time.