Best Buy (NYSE:BBY) stock rose 8% overnight after reporting earnings that pleased analysts.
Best Buy earned $277 million, $1.22 per share fully diluted, on revenue of $10.587 billion for the quarter ending in October.
Despite all the numbers being down from a year ago, they were still ahead of analyst estimates. More importantly, Best Buy management said demand for electronics is holding up.
The company dropped its forecast earlier this year, reiterating it in August. Now it says the fall in comparable store sales may not be as bad as expected.
BBY Stock: Managing Expectations
Investors are looking for signs of falling consumer demand after a year of rising inflation and interest rates.
Before the earnings report came out, Best Buy was down 34% for the year. The overnight rally recovered a recent dip based on fears for the general economy. The average stock in the S&P 500 is down 12.6% in 2022. Best Buy was expected to open near $77 per share. That’s a market capitalization of $17.3 billion.
Retailers generally trade at a fraction of their annual sales because margins are small. But Best Buy was recently trading at less than 40% of its annual sales, and bargain hunters were waiting to pounce.
Best Buy’s second-quarter results, reported in August, helped lead the market down. The company said at the time consumers were giving a higher priority to necessities and cutting spending on big-ticket items.
Retailer earnings have been inconsistent this month. Walmart (NYSE:WMT) and Home Depot (NYSE:HD) rose on their results, while Target (NYSE:TGT) fell. This is continuing, with Dollar Tree (NASDAQ:DLTR) falling on lower expectations, but Abercrombie & Fitch (NYSE:ANF) and Urban Outfitters (NASDAQ:URBN) rising.
What Happens Next
Best Buy did a good job managing expectations, leading to a pop when things were not as bad as they seemed.
But comparable store sales are still down 10.4% for the year, and outside the expectations game, that can’t be good news.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
