Best Buy Co Inc (NYSE:BBY) is surprising both analysts and the market with the progress of its turnaround plan, and that argues for more upside ahead for BBY stock.
Best Buy earnings exceeded Wall Street estimates for a ninth consecutive quarter. Even more important, BBY beat on the top line for the second-quarter in a row. Same-store sales — a critical measure of a retailer’s health — also surprised to the upside.
That’s not bad for a company in the third year of a turnaround plan after having seen it shrink itself dramatically. What’s more encouraging is how BBY beat the Street.
Yes, Best Buy enjoyed strong demand for smartphones, major appliances and televisions. BBY is trying to strengthen its relationships with top brands such as Apple Inc (NASDAQ:AAPL) and Samsung Elect Ltd (OTCMKTS:SSNLF), and the sales gains in those two categories suggest the plan is working.
But it was the advances BBY made against showrooming that should give investors the greatest hope. Best Buy has looked like a goner for a long time now. After all, most national consumer electronics chains have disappeared in the era of e-commerce and always-low prices.
Against that backdrop, BBY became a place for consumers to check out phones and other electronics in person but then make the actual purchase for a lower price at Amazon.com, Inc. (NASDAQ:AMZN) or Wal-Mart Stores, Inc. (NYSE:WMT).
As gratifying as it must be for BBY to serve as a showroom for Amazon and others, it was killing sales and appeared to have no fix.
BBY Takes Advantage of Showrooming
However, 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.
Keeping those sales in house is a big win for Best Buy, especially as it comes against a behemoth like Amazon. It also caused the Street to underestimate Best Buy earnings and revenue in the most recent quarter. As Best Buy CEO Hubert Joly said in a statement:
“The progress we have made to improve our multi-channel customer experience is what has allowed us to consistently outperform the market.”
For the most recent period, Best Buy earnings came to 36 cents per share. Analysts were looking for earnings of 29 cents a share, according to a survey by Thomson Reuters.
Revenue likewise topped Street estimates, slipping 1% to $8.56 billion versus a forecast for $8.46 billion. Although the top line continued to retreat, it was expected and a natural consequence of Best Buy closing underperforming BBY stores.
Culling the store base also helped same-store sales, which grew 0.6%. Analysts projected them to decline 0.4%, and online comparable sales rose 5.3%.
Best Buy stock rose sharply on the news, but then that’s what it does. BBY has been a volatile bet on a successful turnaround for years now, and that probably makes it unsuitable for most retail investors’ portfolios. However, if you’re so inclined to see where Best Buy stock can go from here, the turnaround does indeed appear to be taking root.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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