Best Buy (BBY) continues to be the consumer electronics retailer and stock that just won’t die. Case in point, BBY stock is rallying hard on a surprisingly strong earnings report.
In addition to exceeding Wall Street estimates by a wide margin, Best Buy served up a rosy outlook. This is completely unscripted for a chain in a losing business.
After all, there aren’t a lot of consumer electronics chains left standing in this era, as heightened competition from online rivals like Amazon (AMZN) have decimated the sector and discount giants like Walmart (WMT) have picked its bones nearly clean.
Throw in a customer experience that was far short of spectacular and other management gaffes, and BBY should have disappeared years ago.
And yet, here we are discussing BBY stock and its incredible rally, as the retailer manages to not just grip the edge, but to perform some venerable gymnastics on it. All in spite of a history of choppy results and guidance.
The market doesn’t expect much from Best Buy earnings, making it easier for the company to defy expectations. It also explains why BBY stock periodically goes on a tear. The market prices BBY stock for death — or at least zombie-like returns — and when it fails to keel over, celebration ensues.
The most recent results show that the previous quarter’s strengths weren’t a fluke. Believe or not, Best Buy is actually accomplishing a turnaround.
BBY Stock: Ready for a Year-End Run
Expectations are everything to the market, and by that measure Best Buy has more than delivered.
BBY exceeded Wall Street estimates for its tenth consecutive quarter. Even more importantly, BBY beat on the top line for the third quarter in a row. Same-store sales — a critical measure of health — surprised to the upside for the second-straight quarter.
In the latest period, Best Buy earnings rose to $164 million, or 49 cents a share, from $146 million, or 42 cents a share, a year ago. Analysts surveyed by Thomson Reuters were expecting earnings of just 34 cents a share. That’s a big beat.
Revenue ticked up to $8.5 billion, easily surpassing the Wall Street estimate of $8.3 billion in revenue.
Sales strength was led by large-screen TVs, appliances and phones, but the real secret to BBY’s success is its newfound strength against showrooming — when consumers use Best Buy stores to check out phones and other electronics in person before ultimately purchasing them online. Today, Best Buy earnings prove that BBY can capture some of those showroom sales itself. Investments in Best Buy’s own online store have made it a destination for sales of BBY goods that customers first encounter in a BBY bricks-and-mortar store.
True, BBY stock doesn’t look great as a long-term holding. A bricks-and-mortar retailer of consumers electronics just doesn’t have a bright future no matter how well it’s adjusting to current competitive pressures.
That said, BBY stock could be a heck of trade for the next few months. The market loves to ride BBY stock when the news flow is right. If the back-to-school shopping season goes well, watch for BBY stock to have a nice run into the holiday selling season, and possibly beyond.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
