Shares of Best Buy Company, Inc. BBY jumped more than 11% during the pre-market trading session on Feb 27, following its impressive fourth-quarter fiscal 2019 results, wherein the top and bottom lines, both, exceeded the Zacks Consensus Estimate for the fifth straight quarter. Results gained from decent comparable sales growth in the reported quarter.
Following the quarterly results, management provided its outlook for fiscal 2020, wherein it guided the bottom line to be $5.45-$5.65 which clearly came above the Zacks Consensus Estimate of $5.18.
We note that this Zacks Rank #3 (Hold) stock belonging to the Retail-Consumer Electronics industry has gained 1.4% in the past month as compared to the S&P 500’s growth of 5.7%.
Let’s Delve Deep
This consumer electronics retailer posted fiscal fourth-quarter adjusted earnings per share of $2.72 per share, surpassing the Zacks Consensus Estimate of $2.57. Moreover, the bottom line improved 12.4% year over year.
On a GAAP basis, earnings came in at $2.69, up more than two-folds from the year-ago quarter.
The top line decreased nearly 3.7% year over year to $14,801 million, however trumped the consensus mark of $14,714.9 million. Enterprise comparable sales were up 3% compared with 9% in the prior-year quarter.
We note that the company has been progressing well with its Best Buy 2020: Building the New Blue initiative by enhancing the In-Home Advisor program and launching its Total Tech Support members. Moreover, it completed the buyout of GreatCall, Inc. — a major health services provider — for $792 million.
However, adjusted operating profit came in at $994 million, up 1.2% year over year. Also, adjusted operating margin expanded 30 basis points (bps) to 6.7%.
Segment Details
Domestic segment revenues fell 3.5% year over year to $13,497 million owing to an extra week of revenues recorded in the prior-year quarter. This was partly offset by decline in revenues due to the shutdown of 12 large-format and 257 Best Buy Mobile stores in the past year. The company witnessed comparable sales growth of 3%, driven by robust demand in wearable devices, gaming consoles and appliances. In addition, comparable-online sales at this division increased 9.3% to $2.96 billion, mainly stemming from higher traffic and conversion rates.
The segment’s gross profit declined 4.1% to $2,985 million, while adjusted gross margin came in at 22.1%, down 20 bps year over year. Further, adjusted operating income inched up 0.7% to $903 million, with the operating margin expanding 30 bps to 6.7%.
International segment revenues slipped 5.2% to $1,304 million due to an extra week of revenues recorded in the prior-year quarter, along with unfavorable impact of foreign currency. The company recorded comparable sales growth of 2.5% in the reported quarter.
The segment’s gross profit dipped 3.2% to $298 million in the reported quarter but adjusted gross margin expanded 50 bps to 22.9%. Adjusted operating income came in at $91 million, down from adjusted operating profit of $85 million in the year-ago quarter.
Other Financial Details
Best Buy ended the quarter with cash and cash equivalents of $1,980 million, long-term debt of $1,332 million and total equity of $3,306 million. In the fiscal fourth quarter, the company returned about $482 million to its shareholders via buybacks of $361 million and dividends of $121 million. Moreover, it returned $2 billion of shares via $497 million worth dividends and share buybacks of $1.5 billion during fiscal 2019.
Guidance
Best Buy has issued its guidance for fiscal 2020. Management forecasts Enterprise revenues of $42.9-$43.9 billion compared with $42.9 billion reported in fiscal 2019. Furthermore, comps are expected to be up 0.5-2.5%, down from 4.8% recorded in fiscal 2019. The company anticipates adjusted operating income rate of about 4.6%, flat with the fiscal 2019 level, on a 52-week basis. Meanwhile, it expects an effective tax rate of 24.5%.
For the fiscal first quarter, management anticipates Enterprise revenues of $9.05-$9.15 billion and comps to be flat to up 1%. Management projects adjusted earnings in the band of 83-88 cents. The Zacks Consensus Estimate for the quarter is pegged at 83 cents. Also, it expects an effective tax rate of 22.5%.
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