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Category: Stock Market and Best Buy
Date: 8 September 2019 Stock Price: $66.35 We take a look at the 2nd quarter earnings release of their 2020 fiscal year of Best Buy, the company largely focused on consumer electronics.
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About Best Buy Co.
Best Buy Co., Inc. is an American multinational consumer electronics retailer headquartered in Richfield, Minnesota. It was originally founded by Richard M. Schulze and James Wheeler in 1966 as an audio specialty store called Sound of Music. In 1983, it was re-branded under its current name with an emphasis placed on consumer electronics. (Wikipedia)
Financial overview of Best Buy's latest earnings report
The numbers we are interested in (for the quarter):
- Revenue: $9.536 billion (up from $9.379 billion from the same quarter of the previous year)
- Cost of goods sold: $7.253 billion (up from $7.150 billion for the same quarter of the previous year)
- Net income: $238 million (down from from $244 billion for the same quarter of the previous year)
- Diluted earnings per share: $0.89 (up from $0.86 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 269.4 million (down from 283.7 million for the same quarter of the previous year)
- PE ratio: 19.6 (based on the earnings per share for the current quarter being reported for full fiscal year)
- Cash and cash equivalents: $1.289 billion
- Cash and cash equivalents per share: $4.79
- Cash and cash equivalents makes up 7.2% of Best Buy's current market capital
- Cash and cash equivalents makes up 8.6% of Best Buy's total assets
- Merchandise inventories: $5.208 billion (up from $5.016 billion for the same quarter of the previous year)
- Inventories makes up 34.47% of Best Buy's total assets
- Inventories increased by 3.82% over the last year
- Total shareholders' equity of Best Buy': $3.285 billion
- Shareholders' equity per share: $12.19
- Accounts receivable: $966 million (up from $915 million for the same quarter of the previous year)
- Accounts receivable makes up 6.45% of Best Buy's total assets
- Accounts receivable grew by 5.6% over the last year
Best Buy Co's management commentary on the results and earnings guidance
“For the second quarter, we are reporting comparable sales growth of 1.6% on top of a very strong 6.2% last year,” said Corie Barry, Best Buy CEO. “We also delivered improved profitability driven by gross profit rate expansion and continued disciplined expense management, demonstrating the culture we have built around driving cost reductions and efficiencies to help fund investments. I would like to thank all of our associates for delivering strong first half results.”
Barry continued, “During the quarter, we continued to make progress on our Building the New Blue strategy and our purpose to enrich lives through technology. We expanded our commitment to the health and wellness category through expanded assortment and a second acquisition, grew our Total Tech Support membership, added In-Home Advisors and continued to transform our supply chain to improve our speed of delivery to customers. We are excited about our strategic business opportunities and look forward to updating the market on the progress of our strategy during our Investor Update on September 25.”
Best Buy CFO Matt Bilunas commented, “The updated FY20 guidance we are providing today narrows our prior top-line range and raises the bottom-line range. This updated guidance factors in the following: (1) our best estimate of the impact of recent announcements regarding tariffs on goods from China, including the increase to 30% for List 3 and 15% for List 4; (2) our better-than-expected first half earnings; and (3) general uncertainty related to overall customer buying behavior in the back half of the year.”
FY20 Financial Guidance
Best Buy is updating its full-year FY20 financial outlook to the following:
Best Buy is providing the following Q3 FY20 financial outlook:
Barry continued, “During the quarter, we continued to make progress on our Building the New Blue strategy and our purpose to enrich lives through technology. We expanded our commitment to the health and wellness category through expanded assortment and a second acquisition, grew our Total Tech Support membership, added In-Home Advisors and continued to transform our supply chain to improve our speed of delivery to customers. We are excited about our strategic business opportunities and look forward to updating the market on the progress of our strategy during our Investor Update on September 25.”
Best Buy CFO Matt Bilunas commented, “The updated FY20 guidance we are providing today narrows our prior top-line range and raises the bottom-line range. This updated guidance factors in the following: (1) our best estimate of the impact of recent announcements regarding tariffs on goods from China, including the increase to 30% for List 3 and 15% for List 4; (2) our better-than-expected first half earnings; and (3) general uncertainty related to overall customer buying behavior in the back half of the year.”
FY20 Financial Guidance
Best Buy is updating its full-year FY20 financial outlook to the following:
- Enterprise revenue of $43.1 billion to $43.6 billion, which compares to prior guidance of $42.9 billion to $43.9 billion
- Enterprise comparable sales growth of 0.7% to 1.7%, which compares to prior guidance of 0.5% to 2.5%
- Enterprise non-GAAP operating income rate flat to slightly up from the 4.6% rate in FY192
- Non-GAAP effective income tax rate of approximately 24.0%2 , which compares to prior guidance of approximately 24.5%
- Non-GAAP diluted EPS of $5.60 to $5.752 , which compares to prior guidance of $5.45 to $5.65
Best Buy is providing the following Q3 FY20 financial outlook:
- Enterprise revenue of $9.65 billion to $9.75 billion
- Enterprise comparable sales growth of 0.5% to 1.5%
- Non-GAAP effective income tax rate of approximately 26.5%2
- Diluted weighted average share count of approximately 267 million
- Non-GAAP diluted EPS of $1.00 to $1.052
Best Buy Co (NYSE: BBY) stock price history
The image below shows the stock price history of Best Buy Co for the last 5 years. 5 years ago the stock was trading at around $33 and its currently trading at $66.35. That's almost a 100% return provided to stockholders in Best Buy in the last 5 years. Excellent returns for Best Buy stockholders. The stock is trading at close to the midpoint between the 52 week high and 52 week low which shows that sentiment and momentum in the stock is neutral over the short term (last 12 months).
Recent coverage of Best Buy Co.
Below an extract of coverage on Best Buy by Zacks after the publication of Best Buy's latest earnings report
Best Buy (BBY - Free Report) reported stronger-than-projected earnings Thursday morning, yet investors were mildly disappointment. The stock fell 7.99% during regular trading hours. However, BBY shares are still up 19.2% YTD.
Earnings Report
Best Buy reported earnings of $1.08 per share, which beat expectations of $0.99 per share by 9.09%. Revenue, however, missed expectations of $9.56 billion by just 0.2%, at $9.54 billion. Investors are especially concerned about Best Buy’s miss on same-store sales growth. Estimates called for an increase of 2.1% over last year, but the report showed just 1.6% growth in sales of stores open at least 12 months. Most of the same store sales decline was due to international sales trouble, as U.S. comps climbed 1.9%. Meanwhile, international same store sales fell 1.9%. Best Buy said the decline was primarily due to a downturn in Canada.
Best Buy did raise its earnings forecast for full year 2019 by $0.15 from $5.45-$5.60 to a range of $5.60-$5.75. However, Best Buy lowered its full year same-store sales guidance from between 0.5%-2.5% to 0.7%-1.7%. Analysts were expecting 2% full year comps growth before the earnings report.
Outlook
Best Buy, like many other companies, has the dark cloud of escalating tariffs hanging over its head. Tariffs of 15% on many of the products Best Buy sells, like TVs, smartwatches, and headphones, will go into effect on September 1. Then, on December 15, 15% tariffs will go into effect on another set of goods including computers, mobile phones, and gaming consoles.
These tariffs could seriously impact Best Buy’s top and bottom line. If Best Buy eats these extra costs, it will see drastically reduced margins on these expensive goods. But, if Best Buy passes on these costs to consumers, sales numbers will likely fall as customers buy less. However, Best Buy CEO Corie Barry said that the company expects many vendors to move production out of China in the coming months. She also noted that due to mitigation strategies, the price impact from tariffs will be much smaller than the number of items affected.
The original article on Zacks can be found here
Best Buy (BBY - Free Report) reported stronger-than-projected earnings Thursday morning, yet investors were mildly disappointment. The stock fell 7.99% during regular trading hours. However, BBY shares are still up 19.2% YTD.
Earnings Report
Best Buy reported earnings of $1.08 per share, which beat expectations of $0.99 per share by 9.09%. Revenue, however, missed expectations of $9.56 billion by just 0.2%, at $9.54 billion. Investors are especially concerned about Best Buy’s miss on same-store sales growth. Estimates called for an increase of 2.1% over last year, but the report showed just 1.6% growth in sales of stores open at least 12 months. Most of the same store sales decline was due to international sales trouble, as U.S. comps climbed 1.9%. Meanwhile, international same store sales fell 1.9%. Best Buy said the decline was primarily due to a downturn in Canada.
Best Buy did raise its earnings forecast for full year 2019 by $0.15 from $5.45-$5.60 to a range of $5.60-$5.75. However, Best Buy lowered its full year same-store sales guidance from between 0.5%-2.5% to 0.7%-1.7%. Analysts were expecting 2% full year comps growth before the earnings report.
Outlook
Best Buy, like many other companies, has the dark cloud of escalating tariffs hanging over its head. Tariffs of 15% on many of the products Best Buy sells, like TVs, smartwatches, and headphones, will go into effect on September 1. Then, on December 15, 15% tariffs will go into effect on another set of goods including computers, mobile phones, and gaming consoles.
These tariffs could seriously impact Best Buy’s top and bottom line. If Best Buy eats these extra costs, it will see drastically reduced margins on these expensive goods. But, if Best Buy passes on these costs to consumers, sales numbers will likely fall as customers buy less. However, Best Buy CEO Corie Barry said that the company expects many vendors to move production out of China in the coming months. She also noted that due to mitigation strategies, the price impact from tariffs will be much smaller than the number of items affected.
The original article on Zacks can be found here
Best Buy Co. (NYSE: BBY) latest stock valuation
So what are Best Buy stock worth based on their latest earnings report and fiscal guidance? Our valuation models provide a target price on Best Buy stock of $74.50. We therefore believe the stock is undervalued and offers long term fundamental investors and value investors a good buying opportunity into Best Buy shares. Tariffs and the impact it will have on the group's top and bottom line affected our valuation of Best Buy. We adjusted our valuation downwards by 15% to take significant tariff impacts into account in our valuation.