by Ian Harvey
August 30, 2017
Electronics and appliance retailer Best Buy Co Inc. (NYSE:BBY), reported
better-than-expected quarterly earnings and sales yesterday, helped by strong
demand for smartphones, connected home and wearable devices.
Shares of Best Buy rose nearly 5% during
pre-market trade on Tuesday after the company reported fiscal 2018 second
quarter earnings that came in above Wall Street expectations.
And then, CEO Hubert Joly made a
statement warning investors on a Tuesday conference call they shouldn't
consider such robust comparable sales growth to be the new normal, causing the earlier
gains to reverse; ending the day down 11.95% to sit at $55.02.
Traders reacted badly to this information and decided to punish a good, sound earnings report, much to the glee of the bears.
Best Buy reported net earnings of $209
million, or 67 cents per share for the quarter, up from $198 million or 61
cents per share during the same quarter a year ago. Adjusted earnings per share
were 69 cents in the quarter, with revenue at $8.9 billion, up from $8.5
billion a year ago.
Best Buy's sales at established stores
rose 5.4 percent in the second quarter ended July 29, besting analysts' average
expectation for a 2.1 percent increase.
higher-than-expected comparable sales of 5.4% were driven by stronger consumer
demand for technology products and by the strong execution of our
strategy," said Best Buy Chief Executive
Hubert Joly in a statement. "Against
a backdrop of continued healthy consumer confidence, we believe broad-based
product innovation is resonating with consumers and driving higher spend."
As well, Best Buy raised its guidance
for the full year, now expecting revenue to grow about 4.0%, compared with the
previous 2.5% expectation. Non-GAAP operating income is expected to grow about
4.0% to 9.0%, an increase compared with the previous 3.5% to 8.5% projected growth.
Shares of Best Buy have gained more than 46% in the year to date, while the
S&P 500 Index (SPX), is up more than 9%.
Best Buy has in fact benefitted from
this challenging environment in the second quarter as some of its competitors
closed stores, particularly the electronics-retailer Hh Gregg. Overall, US
online comparable sales surged about 31 percent, compared to a year-earlier
growth rate of 23.7 percent, as faster shipping and improvements to its
checkout process and search functionality drew more shoppers.
Best Buy managed to make real progress this quarter, despite being in one of the most Amazon-exposed categories in all of retail. And it made headway even as Amazon threw it a fresh challenge, with the e-commerce giant striking a deal with Sears Holdings Corp. to sell Kenmore brand appliances. Also, don't forget Amazon's big Prime Day sale fell during this quarter, meaning it was dangling big discounts in front of shoppers for all sorts of gadgets.
At times, it becomes a head-scratching situation trying to understand the reasoning behind some traders’ outlook on earnings reports, and the way they interrupt them – or is just a case of the “sheep mentality”.
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