Through the end of February, Best Buy Co Inc (NYSE:BBY) stock had gained 36% in 12 months — not too bad for a brick-and-mortar electronics retailer many thought would be pushed aside years ago by Amazon.com, Inc. (NASDAQ:AMZN).
On the first day of March, though, Best Buy reported the results for its holiday quarter and investors took their profits and headed for the hills.
In one day, BBY stock shed nearly 5%, sending it into the red year-to-date. Today, Best Buy stock is up north of 6%. Interesting!
BBY Stock Earnings
What had Best Buy stock investors shook? For starters, same-store sales — a key metric in retail measuring revenue at stores that have been open at least a year — dropped 0.7% year-over-year, while the consensus was for an increase of 0.5%. And that drop was on top of a nearly 2% decline in same-store sales for the year prior.
The overall top line also shrunk and missed analyst expectations. CEO Hubert Joly, who has been credited for re-energizing the retail chain, blamed the sales struggles largely on weak demand for gaming consoles and mobile phones.
The good news is that Joly’s management skills once again shone — and not despite, but instead because of the top-line struggles. Best Buy earned $1.95 per share, good enough for 27% year-over-year growth and good enough to blow Wall Street’s consensus of $1.67 out of the water.
In the report, BBY attributed its earnings growth to “a disciplined promotional strategy, continued optimization of merchandise margins and strong expense management.” Indeed, the domestic GAAP and non-GAAP gross profit rate was 22.3% — nearly a percentage point better than the year prior.
I’ve felt unsure about the recovery prospects of BBY stock in the past, but actually feel reassured by the wide earnings beat despite weak sales. This is especially true since, as Consumer Edge Research retail analyst David Schick summarized nicely: “We think lackluster mobile, some product outages, and worse gaming (in a quarter that matters) are the forces at work, not a sudden shift to a less relevant BBY.”
Bottom Line on BBY Stock
Every company is going to have ups and downs. Best Buy just suffered from broader retail weakness and some inconsistent demand at a time when BBY stock had significant gains in the books. It happens. But it’s not a sign that the turnaround has run it’s course. It’s just a bump in the road.
I’m especially confident considering Best Buy, after reporting its earnings beat, also announced a new $3 billion share repurchase plan expected to be completed over the next two years and a 21% increase in the regular quarterly dividend to 34 cents per share, effective immediately.
That means, at current levels, you can get BBY stock, boasting long-term earnings growth of almost 12%, for a forward price-earnings of 12 plus a dividend yield north of 3%. Not too shabby.
Snag some shares of BBY stock now and you’re getting a great income play at a very reasonable price.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.