Best Buy (NYSE: BBY) reported second-quarter fiscal 2020 results, and both its top and bottom lines improved year-over-year. Its earnings per share came in above the Zacks Consensus Estimate for the seventh straight time. Its sales, however, came in below analysts’ average estimate.  While BBY raised its fiscal 2020 earnings guidance, it narrowed its sales guidance, citing the impact of the expected upcoming tariffs.

BBY posted adjusted earnings of $1.08 per share, surpassing the Zacks Consensus Estimate of 99 cents. Moreover, its bottom line improved 18.7% year over year, courtesy of an improved gross margin and stringent cost management.

On a GAAP basis, its earnings came in at 89 cents, up 3.5% from the year-ago quarter.

Though the top line grew 1.7% year-over-year to $9,536 million, it fell short of the consensus mark of $9,567 million. Its enterprise comparable sales rose 1.6% compared with a 6.2% gain  in the prior-year quarter.

Its adjusted operating margin rose 0.2 percentage  points to 4%.

Segment Details

BBY’s domestic revenues rose 2.1% YoY to $8,821 million, driven by decent comparable sales and contributions from its acquisition of the GreatCall online health servioe. This was partly offset by a decline in revenues due to the shutdown of 13 large-format stores in the past year. BBY’s  comparable sales growth was 1.9%, backed by robust demand in headphones, tablets, appliances and services, partly offset by weakness in the gaming and home theater categories.

Additionally, the division’s comparable online sales increased 17.3% to $1.42 billion, mainly owing to higher traffic and higher average order values.

The segment’s gross margin expanded 0.2 percentage points YoY to 24%, driven by a higher gross margin at GreatCall, which was somewhat countered by increased supply-chain expenses.

International revenues decreased 3.4% to $715 million, largely due to the unfavorable impact of foreign currency.  The segment’s gross margin expanded 0.7  percentage points to 23.8%.

Other Financial Details

Best Buy ended the quarter with cash and cash equivalents of $1,289 million, long-term debt of $1,247 million and total equity of $3,285 million. In the fiscal second quarter, the company returned about $363 million to its shareholders via  share buybacks of $230   million and dividend payouts of $133 million.

Moreover, in February, BBY announced plans to buy back shares worth $750 million-$1 billion in fiscal 2020.

Guidance

Best Buy is progressing well with its Building the New Blue strategy. Also, during the quarter, the company enhanced its health and wellness category via increased assortments and another acquisition. Additionally, Best Buy strengthened its Total Tech Support membership, and enhanced its supply chain to speed up its deliveries

BBY narrowed its top-line guidance but raised its bottom-line view for fiscal 2020. The revision is based on its better-than-expected performance in the first half of the fiscal year, the expected impact of raised tariffs on Chinese goods and volatile consumer spending patterns.

Best Buy now forecasts Enterprise revenues of $43.1-$43.6 billion compared with the previous guidance of $42.9-$43.9 billion. The company reported Enterprise revenues of $42.9 billion in fiscal 2019. Furthermore, comps are expected to grow 0.7-1.7% compared to the prior view of a 0.5-2.5% increase. The company’s comps grew 4.8% in fiscal 2019..

Moreover, adjusted EPS is now envisioned to be $5.60-$5.75, better than the $5.45-$5.65 forecast earlier. The Zacks Consensus Estimate is currently pegged at $5.75.

For fiscal Q3, BBY anticipates Enterprise revenues of $9.65-$9.75 billion and comp sales growth of 0.5-1.5%. Also, it expects an adjusted effective tax rate of 26.5%. Management expects Q3 adjusted EPS of $1.00-$1.05, which stands above the current Zacks Consensus Estimate of 96 cents.

Price Performance

BBY stock has gained 6.1% in the past three months compared with the industry’s growth of 3.4%.

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