Best Buy Co Inc.’s (NYSE:BBY) reported better-than-expected earnings Tuesday, but not much else in the way of encouraging news — and that could take any remaining momentum out of BBY stock.
Indeed, the electronics retailer’s outlook was so disappointing that Best Buy stock reacted immediately by plunging more than 6% in pre-market trading.
Woof.
Best Buy projected adjusted per-share earnings between 38 cents and 42 cents for the current quarter, whereas analysts were looking for 50 cents.
This just might be the inflection point that turns a reasonably promising year into a dog for BBY.
Shares in the consumer electronics retailer’s stock were up more than 8% for the year-to-date. That’s a performance any investor would take in a 2016 that has seen the broader market hem and haw its way to a basically flat performance.
But BBY stock has been stuck tracking a level of about $32 a share for three months now, and this latest earnings report might be the final straw for impatient bulls.
The first quarter may be the least important selling period of the year for consumer electronics chains, but the way BBY struggled, the whole turnaround comes into question.
Best Buy’s (BBY) Report
For the most recent period, Best Buy earnings on an adjusted basis came to 44 cents a share. That was well ahead of Wall Street’s forecast for earnings per share of 35 cents, according to a poll by Thomson Reuters. Revenue likewise exceeded estimates, coming in at $8.44 billion vs. a forecast of $8.29 billion.
The trouble is that the current quarter outlook is weak, and the earnings beat just reported does nothing to change BBY’s outlook for the fiscal year. In fact, the first quarter just isn’t all that important in the context of the whole year. As CEO Hubert Joly said in a statement (emphasis ours):
“Although we are reporting better-than-expected results today, we are not raising our full-year outlook as the first quarter represents less than 15% of full-year earnings.”
That lackluster outlook rally takes the energy out of any shorter-term bull case on Best Buy stock, especially when sales continue to decline and the chain faces so much uncertainty on the products front.
Better sales of health and wearables, home theater gadgets and appliances were among the quarterly highlights, but that couldn’t offset weakness in mobile phones and tablets.
Perhaps more ominously, BBY said it has “no new material information as it relates to product launches throughout the year.”
The company added that it won’t be issuing an interim holiday press release this year, and CFO Sharon McCollam is resigning as of June 14. She will be replaced by Chief Strategic Growth Officer Corie Barry.
Bottom Line on BBY Stock
With an expected lack of hot new gadgets and less visibility into holiday sales results, the market is well within its right to recalibrate the risks it perceives in BBY stock. Especially amid a broader struggle for retail that has seen everyone hit, from Target Corporation (NYSE:TGT) to Macy’s, Inc. (NYSE:M) to Nordstrom, Inc. (NYSE:JWN).
The skepticism reflected in Best Buy’s shares over the past few months appears to have been warranted, and don’t be surprised if they languish all summer long.
Unless some reason emerges to get excited about the second half of the year, where’s the catalyst for Best Buy stock?
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
