Best Buy Earnings Report

Very good earnings report turns to dust after CEO makes unnecessary comment!
Traders over-react badly!

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.

"Our 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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Best of Trading,
Ian Harvey
Director of Stock Options Made Easy


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