Best Buy Co., Inc. (NYSE: $BBY) specializes in providing consumer technology products and services and operates through two distinct business segments: Domestic and International.
The Domestic segment encompasses operations across all states, districts, and territories of the U.S., under various brand names such as Best Buy, Best Buy Mobile, Geek Squad, Magnolia Audio Video, Napster, and Pacific Sales. The International segment comprises all operations outside the U.S. and its territories, spanning Canada, Europe, China, Mexico, and Turkey.
The company markets its products under a variety of brand names, including Best Buy, bestbuy.com, Best Buy Direct, Best Buy Express, Best Buy Mobile, Geek Squad, GreatCall, Magnolia, and Pacific Kitchen and Home. Established in 1966 by Richard M. Schulze, the company is headquartered in Richfield, MN.
Best Buy (BBY) Q3 Earnings Beat Estimates, Sales View Down
Best Buy Co., Inc. (BBY) exceeded earnings expectations in the third quarter of fiscal year 2023, although both sales and earnings witnessed a decline compared to the previous year. Best Buy reported adjusted earnings of $1.29 per share, surpassing the Zacks Consensus Estimate of $1.19. However, this figure reflects a decrease from the $1.38 per share recorded in the same period last year.
More Details
Enterprise revenues saw a 7.8% decline from the previous fiscal year’s quarterly figure, reaching $9,756 million, falling short of the Zacks Consensus Estimate of $9,883 million. Comparable sales for the enterprise decreased by 6.9% year over year, a narrower decline compared to the 10.4% drop in the year-ago quarter.
The gross profit experienced a 4.3% decline, settling at $2,232 million, while the gross margin expanded by 90 basis points to 22.9%. This result aligned with our initial estimate. Adjusted operating income came in at $369 million, down from the $412 million reported in the same quarter of the previous year. The adjusted operating margin saw a 10-basis-point decrease to 3.8%, surpassing our estimated 3.4%.
It’s worth noting that adjusted selling, general, and administrative expenses decreased by 3% to $1,863 million. However, as a percentage of revenues, these expenses increased by 100 basis points to 19.1%. Our anticipated rate for adjusted SG&A expenses in relation to revenues was set at 19.6%.
Guidance
In the fiscal year 2024, encompassing 53 weeks, management forecasts revenues of $43.1-$43.7 billion and a comparable sales decline of 6-7.5%, revising earlier expectations of $43.8-$44.5 billion in revenues with a comparable sales decline of 4.5-6%.
The company now envisions a fiscal 2024 adjusted operating margin of 4-4.1%, up from the previously mentioned range of 3.9-4.1%. The anticipated effective income tax rate for fiscal 2024 is 24%. Adjusted earnings per share (EPS) for the same period are projected to be between $6.00 and $6.30, adjusted down from the earlier guidance of $6.00 to $6.40. Capital expenditure is expected to be $825 million.
For the fourth quarter of fiscal 2024, Best Buy predicts a 3-7% decline in comparable sales, and the adjusted operating income rate is anticipated to fall within the range of 4.7-5%.
Best Buy’s guidance accounts for the 53rd week in the fiscal year, which is estimated to contribute approximately $700 million in revenue during the fiscal fourth quarter. Additionally, the 53rd week is expected to increase the adjusted operating income rate by 10 basis points for the entire fiscal year.
Why Best Buy can Handle The Pressure of Lower Demand
Best Buy (BBY) shares experienced a decline on Tuesday following the company’s announcement of a drop in comparable sales for the eighth consecutive quarter. According to reports from Reuters, Best Buy anticipates a more significant decrease in annual comparable sales and attributes this to the challenges of predicting consumer demand.
Economic factors such as interest rates, credit card debt, and the resumption of student loan repayments have contributed to a decrease in discretionary spending among consumers.
Despite these challenges faced by retailers, Seth Basham, Managing Director at Wedbush Securities, shares insights on why Best Buy remains relatively resilient in addressing the declining consumer demand.
Basham provides context to Best Buy’s consumer base, noting that the average customer tends to have a slightly higher income than the national average.
This positioning is advantageous, especially considering the heightened financial pressure on low to mid-income consumers who are depleting savings from the pandemic and relying on credit cards to sustain their expenditures.
Consequently, this demographic is pulling back more significantly compared to the mid to high-end consumer segment. Additionally, Basham points out that Best Buy operates a substantial credit card portfolio profit-sharing program with its private label provider.
While the current situation appears to be under control, he anticipates potential profitability pressure from this program into 2024 as interest rates rise. Despite this, Basham suggests that Best Buy is managing the situation, albeit acknowledging it as a headwind affecting profit margins in 2024.
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