Best Buy’s Earnings Were Solid. Why the Stock Is Plummeting.
A Best Buy retail store in San Bruno, California.
Justin Sullivan/Getty Images
Best Buy
was falling sharply Tuesday after the electronics retailer posted fiscal third-quarter earnings that topped estimates and the company boosted its sales outlook for fiscal 2022.
A decline in gross margin likely was the reason for the stock’s sharp decline. Gross margin in the third quarter fell to 23.5% from 23.6% a year earlier.
The company said it has been seeing more “organized retail crime” at its stores.
“We are definitely seeing more and more particularly organized retail crime and incidents of shrink in our locations,” said Best Buy CEO Corie Barry on a conference call. “This is a real issue that hurts and scares real people.”
The stock fell 16% to $115.92 on Tuesday.
Best Buy (ticker: BBY) earned $2.08 a share on an adjusted basis in the third quarter. Sales were $11.91 billion.
Analysts surveyed by FactSet expected Best Buy to report third-quarter earnings of $1.95 a share on sales of $11.65 billion. A year earlier, the company earned $2.06 a share on sales of $11.85 billion.
Best Buy’s third-quarter same-store sales in the U.S. rose 2%, higher than expectations of an increase of 0.3%.
The company said it expects fourth-quarter revenue of $16.4 billion to $16.9 billion vs. estimates of about $16.8 billion. Best Buy forecast comparable sales between a 2% decline and an increase of 1%; analysts expect same-store sales to rise 0.1%.
While Best Buy’s comparable-store sales outlook for the holiday season was soft, Ethan Chernofsky, vice president of marketing at Placer.ai, the foot traffic analytics company, said visit growth at the company’s stores in October indicated that the “retailer is seeing its offline strength grow heading into a critical holiday season.”
“The combination of an improving retail context ahead of the holidays and the brand’s creative approaches to problem-solving position them for an especially strong holiday period,” Chernofsky added.
Best Buy raised its fiscal 2022 revenue outlook to between $51.8 billion to $52.3 billion from previous guidance of $51 billion to $52 billion.
Best Buy said it expects same-store sales growth in fiscal 2022 of 10.5% to 11.5%, higher than prior guidance.
Analysts at Wells Fargo, which have an Equal Weight rating on the stock, reduced their price target to $125 from $135.
“While the Q4 outlook likely proves conservative (per usual), we view a big beat less likely with October pull-forward risk and heightened margin pressures (via Total Tech, rising promo, investments, etc.) appearing likely to bleed into FY23,” the analysts wrote in a note Tuesday.
Shares of Best Buy have risen 17% so far in 2021 vs. the
S&P 500
‘s gain of 24.7%.
Write to Joe Woelfel at joseph.woelfel@barrons.com