Best Buy Q2 Sales Rose about 6% But Warns of a Slowdown in Q3; Shares Down About 8%

Best Buy Co Inc, an American multinational consumer electronics retailer headquartered in Minnesota, said its comparable sales rose about 6% in the second quarter but cautioned about a slowdown in the third quarter as the company faced a risk of higher unemployment, lower fiscal stimulus and supply chain issues due to COVID-19 pandemic, sending its shares down about 8% on Tuesday.

The technology retailer said its enterprise comparable sales rose 5.8%, which was higher than the market consensus of 3.7% growth. Overall revenue increased about 4% to $9.9 billion and revenue in the U.S. increased by 3.5% to $9.13 billion versus last year. The increase was primarily driven by comparable sales growth of 5%, which was partially offset by the loss of revenue from 25 permanent store closures in the past year.

Best Buy said in the U.S. online revenue increased 242.2% to $4.85 billion on a comparable basis primarily due to higher conversion rates and increased traffic. As a percentage of total revenue in the U.S., online revenue increased to approximately 53.1% versus 16.1% last year. Best Buy’s net earnings climbed 81.5% to $432 million in the quarter.

“Expectations were clearly high heading into Best Buy’s print, and we think their results and early 3Q look met expectations. With the stock having moved up significantly recently, it’s unclear how much is left in the near term, and we could see some profit-taking,” said Michael Baker, MD and senior research analyst at D.A. Davidson.

“But, we continue to like this story as trends accelerate and the company remains very well positioned for the new ‘stay, play, earn and learn’ from home normal, or ‘work, learn, connect and cook’ at home, as Best Buy states it,” Baker added.

Best Buy’s shares traded about 8% lower at $109.19 on Tuesday. However, the stock is up over 30% so far this year.

Executives’ comments

“Enterprise revenue growth was almost 4%, even though our stores were open by appointment only for the first six weeks of the quarter. Specifically, enterprise sales growth was approximately 16% in the last seven weeks of Q2 after we opened our stores and the strength continued into August, with sales up approximately 20% for the first three weeks of Q3,” said Corie Barry, Best Buy CEO.

“As a result of the ongoing uncertainty, we are not providing financial guidance today. However, I would note that we are planning for Q3 sales to be higher compared to last year but likely will not continue at the current quarter-to-date level of approximately 20% growth. Also, as our stores are fully reopened, we are planning for Q3 SG&A expense to be more in line with last year’s third quarter,” Best Buy CFO Matt Bilunas said.

Best Buy stock forecast

Fourteen analysts forecast the average price in 12 months at $110.00 with a high forecast of $135.00 and a low forecast of $92.00. The average price target represents a -6.28% decrease from the last price of $117.37. From those 14 analysts, nine rated “Buy”, five rated “Hold” and none rated “Sell”, according to Tipranks.

Best Buy had its price target raised by Telsey Advisory Group to $120 from $105. They currently have an outperform rating on the technology retailer’s stock. Morgan Stanley gave a target price of $85 with a high of $105 under a bull-case scenario and $60 under the worst-case scenario.

Other equity analysts also recently updated their stock outlook. Piper Sandler lifted their price objective on shares of Best Buy to $127 from $112 and gave the company an overweight rating.

We think it is good to buy at the current level and target $130 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“Best Buy is a best in class retailer led by a capable management team, and we are positive on the longer-term opportunity for the business and stock. BBY’s leading position in a healthy category and strength in key Retail fundamentals including merchandising, labour management, supply chain and omni-channel underpin our view,” said Simeon Gutman, equity analyst at Morgan Stanley.

“The shorter-term outlook seems less favourable, with a high level of uncertainty around sales/margin trends in 2020-2021. This keeps us Equal-weight rated,” he added.