After bringing the electronics retailer back from the brink in recent years, Best Buy's CEO is spending on initiatives to accelerate growth while fending off Amazon.com.

(Bloomberg)—Best Buy Co. Inc. is the latest retailer to be punished by investors even as its quarterly results outpaced projections. Best Buy’s second-quarter profit, revenue and comparable-sales all outperformed estimates—but investors zeroed in on the company’s conservative projections.

Online revenue reached $1.21 billion and increased 10.1% compared with the same period last year, primarily due to higher conversion rates and increased traffic, the retailer says. As a percentage of total revenue, online revenue increased to 14.0% compared with 13.2% last year.

Same-store sales rose 6.2% in the second quarter ended Aug. 4, the electronics retailer said. Analysts had predicted 4.1% growth, according to Consensus Metrix.

“We are happy to report strong top- and bottom-line results for the second quarter that exceeded our expectations,” says CEO Hubert Joly, according to Seeking Alpha.

But Best Buy, No. 8 in the Internet Retailer 2018 Top 500, anticipates a period of slower growth following its recent success, as its projections for profit in the current quarter fell short of analysts’ estimates. The retailer expects a same-store sales increase of 2.5% to 3.5% this quarter. That would be the slowest gain in six quarters for that measure, a key performance metric for retailers.

advertisement

“The challenge for the company, in our view, is to maintain the strong top-line results as comparisons become more difficult, especially since the stock has already re-rated meaningfully over the past year,” says Scot Ciccarelli, an analyst with RBC Capital Markets. The value of Best Buy’s stock had increased by about 19% this year through Monday’s close.

While it’s been a solid summer for retail, with large chains’ sales buoyed by brisk economic growth, tax cuts and easing gas prices, results at companies like Best Buy and Macy’s Inc. (No. 6) show that Wall Street sees the pendulum at risk of swinging back again.

Earnings will be 79 cents to 84 cents in the third quarter, excluding some items, the electronics retailer said Tuesday, trailing the 91-cent average of analysts’ estimates. The retailer also predicted slowing growth in same-store sales for the period.

After bringing the electronics retailer back from the brink in recent years, CEO Joly is spending on initiatives to accelerate growth while fending off Amazon.com Inc. (No. 1). His next phase includes a tech support program that will service any gadget for an annual fee, no matter where it was bought, along with trained salespeople who make house calls to tease out more spending from consumers. The costs associated with those two programs should weigh on profitability this year, according to analysts.

Last quarter, the gross profit margin was hurt by higher supply-chain costs, including the national rollout of the tech support initiative, Best Buy said in a statement Tuesday.

advertisement
Favorite