Best Buy (NYSE:BBY) beat earnings estimates for the holiday quarter. But the stock barely budged as markets continued to digest the coronavirus from China.
Earnings for the Minneapolis-based electronics retailer were $745 million, $2.84 per share fully diluted, on revenue of $15.2 billion. The headline number was online sales, up 18.7% from a year ago. Sales in stores were up a little over 3%.
The results were in line with estimates from Placer.ai. The numbers would have been better had Best Buy not closed some stores to focus on e-commerce. Black Friday was especially good, just not as great as in 2018.
Best Buy has is down almost 10% in 2020 thanks to the coronavirus. It opened for trade Feb. 27 at about $82 per share, a market capitalization of $23.8 billion on fiscal 2020 revenues of $43.6 billion.
The earnings release from Best Buy highlighted how it beat analyst estimates. Management continued the happy talk on their conference call. They insisted the coronavirus will be “a relatively short-term disruption.” They also raised the quarterly dividend to 55 cents per share.
This means today’s investors can expect a dividend yield of about 2.7% over the next year, even without capital gains. That may be enough to draw income investors at a time when the U.S. 30-year Treasury bonds yield just 1.8%.
The Christmas quarter may be the best news to come out of Best Buy until next Christmas, however. The Placer.ai analysis notes that few people are going to the stores outside the Christmas season. Father’s Day is a small sales driver, but not even back-to-school season moves the needle much. If the company can create a sense of urgency for in-store purchases beyond Christmas, the stock could rise further, or so it thinks.
Best of Breed?
Best Buy has a respectable price-sales ratio for a retailer, at about half its sales. But there are stores doing much better. Lowe’s Companies (NYSE:LOW) stock sells at a premium to sales. So do Ross Stores (NASDAQ:ROSS) and The TJX Companies (NYSE:TJX).
The key to a higher ratio is fat margins. This is difficult for an electronics retailer. Best Buy frequently see the value of inventory declining after they buy it, a product of Moore’s Law. Still, the world’s largest grocer, Walmart (NYSE:WMT), manages to sell for about 60% of its revenue, even while bringing just 3% to the net income line and offering a smaller yield. The comparable figure for Best Buy is about 5% of revenue hitting net income.
Like Walmart, Best Buy is currently focused on increasing its online sales. It is also getting creative with a “progressive leasing” program on big-ticket items. This makes it similar to Aaron’s (NYSE:AAN), which is worth about 80% of its revenue. Best Buy also gets cash flow from its Geek Squad operation, selling extended warranties other stores can’t match.
The Bottom Line on Best Buy Stock
I have been following computer retailing since 1983. Back then computer stores were one thing, office supply stores another, while consumer electronics meant stereos and TVs.
Best Buy has been able to absorb most of these niches. Computers are now office machines, sold alongside the TVs. The biggest specialized competition comes in phones, from carriers and brands like Apple (NASDAQ:AAPL) selling direct.
Best Buy, which began life as an audio specialist, has navigated all these trends. In its 54 years it has also seen the rise and fall of “category killer” stores like the now-defunct Sports Authority and Toys “R” Us. Best Buy is one of the best-run retailers you can own. When the current downdraft ends, it’s worthy of consideration by an income-oriented investor.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL.