BBY Stock: The Biggest Problems Lie Ahead for Best Buy Co Inc Shares

A few days ago, I cautioned investors about investing in Best Buy Co Inc (BBY) stock before fourth-quarter earnings results came in this morning. The electronics retailer had already come out and warned investors that Q4 results wouldn’t be quite as rosy as expected, and that’s not exactly the backdrop for a sound investment.

BBY Stock: The Biggest Problems Lie Ahead for Best Buy Co Inc SharesAlas, to my surprise, fourth-quarter results were better than expected. Best Buy reported better top- and bottom-line numbers than analysts expected, and BBY stock ticked 1% higher in the first few minutes of trading.

That said, I think the response to the earnings release is a little shortsighted. (The gains aren’t holding as the day wears on). After all, the forward guidance Best Buy gave wasn’t quite so sanguine — and Best Buy stock investors should care more about the future than the past.

BBY Stock’s Fourth-Quarter Results

Best Buy revenue came in better than expected, barely, with sales of $13.62 billion in the period. While down 4.1% year-over-year, that was modestly better than the $13.61 billion Wall Street was looking for.

Earnings per share more easily breezed past Street estimates, clocking in at $1.53 per share vs. the consensus $1.39 figure.

From there, things get worse: BBY forecast Q1 2017 revenue between $8.25 and $8.35 billion, which is a year-over-year decline of 3% at the midpoint. Analysts expected revenue to fall, but not by that much — they were looking for a 1.2% decline to $8.45 billion.

Q1 projections for EPS were also way off, as management expects BBY to earn between 31 cents and 35 cents per share — a decline of 11% from the 37 cents it earned in the year-ago quarter. The Street was looking for 39 cents from Best Buy stock.

Sharon McCollam, CAO and CFO, outlined how the top brass sees the year going:

“…based on current industry dynamics and how we see the various product cycles playing out in our Domestic business, we are expecting revenue declines in the first half followed by growth in the back half.”

McCollam said that “softness” in the mobile market was expected to continue, which was one of the primary concerns with BBY stock going into the report.

The reason that’s concerning? Best Buy’s revenue sources aren’t exactly what you’d consider diversified. A full 43% of revenue came from computing and mobile devices in Q4, and comparable sales in that segment were down 6.8% year-over-year. While it’s nice that its second-largest division (35% of sales), consumer electronics, saw comparable sales growth of 2.7% in the quarter, it pales in comparison to the 10.7% growth rate it saw a year ago.

On the upside, BBY stock is becoming a stronger and stronger dividend play, and the board approved a 22% increase in the quarterly dividend to $0.28 per share. The company also announced a $1 billion stock buyback program over two years and a special dividend of $0.45 per share due to legal settlements and asset sales.

That’s all well and good, but in my view those are short-term bribes that merely distract investors from the bleaker long-term picture.

The smartphone market as a whole is maturing, and there’s only so much that cost-cutting initiatives can do. BBY needs to diversify its revenue streams quickly if it hopes to remain competitive.

There are better companies to buy in retail and electronics. Target Corporation (TGT) is coming off a good report, and, Inc. (AMZN) is the company that almost drove Best Buy out of business a few years back.

Either one of them would be a better buy than BBY stock today.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at

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