This Retailer Just Blew Away Investors’ Expectations

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Before Best Buy announced its Q2 earnings results today, the giant electronic retailer was stirring up a lot of debate within the investing community. Many thought that Best Buy would be able to continue its profitability from last quarter while others were skeptical of Best Buy’s earnings potential, believing it’s doomed to fail in its fight against Amazon and other electronic retailers. At market close yesterday, Estimize consensus stood at $0.35 EPS, just one cent higher than the Wall Street consensus of $0.34. The Estimize consensus anticipated revenues of $8.32B, slightly higher than the $8.30B predicted by Wall Street. However, this morning, Best Buy surprised the investing community with its Q2 EPS of $0.49, a 17% increase from Q2 last year, beating Wall Street consensus by $0.15 and Estimize consensus by $0.14. Its revenue of $8.53B also beats consensus by $240M and $210M respectively. As a result, Best Buy’s stocks increased +11.4% premarket and currently stands at $33.57.

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Best Buy stocks have been volatile in the past year. The stock had plummeted early in the year and slowly rose until its 52 week high of $42 mid-March. Since then, BBY stocks have been trending downwards, declining until its closing price yesterday at $29, just barely above its 52 week low. Over the past year, Best Buy has focused on its Renew Blue restructuring program that involves not only cost cutting but also omni-channel retailing, reaching customers wherever they are. Their cost cutting efforts have gone better than originally expected, saving over $1B for the company. The company’s Q2 domestic gross profit rate also increased +130bps to 24.7%, while the international gross profit rate came in a little lower at 23.4% due to large restructuring efforts abroad. Some of their changes included closing 66 stores branded under Future Shop, its Canadian brand, and converting the remaining 65 stores into Best Buy locations. As a result of store closures and F/X pressures, Best Buy saw its international sales drop by 26% to $650M. The domestic segment did much better, with revenue increasing 3.9% to $7.88B

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Many investors were concerned with Best Buy’s ability to grow its online business and extend its online sales distribution network through their omni-channeling efforts. However, it appears that the omni-channeling strategy has proven successful in combating the consistent “showroom” culture. The company saw a 17% rise in online sales, positively contributing to a strong 3.8% increase in comparable-store sales.

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BBY data by YCharts

However, there is still a long way to go. At this time, many customers are urging for Best Buy to catch up on their delivery efforts. Aside from competition with online retailers who offer services such as Amazon Prime 2-day shipping, traditional retailer Wal-Mart has also declared their efforts in expanding their 2 day or less delivery to 95% of the population. Best Buy’s standard shipping is still 3-7 days with free shipping limited to an order of $35 and over. The electronic giant is also facing challenges from slowing consumer electronic spending, United States census bureau has revealed weak retail sales in recent months and future macro-economic data might create further problems for the company. So far, Best Buy has definitely done better than expected but whether it can keep its current trend remains to be seen.

(Photo Credit: Edwin Ruskin Nordrike Parker)

Source: This Retailer Just Blew Away Investors’ Expectations

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