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Best Buy rallies 10% on improved margins, EPS outlook

AInvestThursday, Aug 29, 2024 8:46 am ET
2min read

Best Buy's Q2 earnings report for FY25 showcased a blend of positive surprises and cautious optimism. The company reported earnings per share (EPS) of $1.34, surpassing analyst expectations by $0.18 compared to the FactSet Consensus estimate of $1.16. This strong EPS performance indicates a robust profit margin and effective cost management. However, revenue for the quarter was $9.29 billion, which represents a 3.1% decline year-over-year, slightly outpacing the Consensus revenue estimate of $9.23 billion, the company's revenue decline was within the expected range.

Comparable sales, a key performance metric, declined by 2.3% in Q2. This performance was slightly better than the company's own guidance, which had projected a decline of 3%. The ability to outperform this metric suggests that Best Buy's strategies to enhance its product offerings and customer experience are partially paying off, even in a challenging retail environment.

Looking ahead, Best Buy has revised its guidance for the fiscal year 2025. The company now expects EPS to be in the range of $6.10 to $6.35, up from the prior guidance of $5.75 to $6.20, and exceeding the consensus estimate of $6.07. This positive revision reflects better-than-expected profitability during the first half of the year. On the revenue front, Best Buy anticipates a range of $41.3 billion to $41.9 billion for FY25, a slight reduction from the previous guidance of $41.3 billion to $42.6 billion but still in line with the consensus of $41.75 billion.

For Q3, the company projects comparable sales to decline by approximately 1.0% and a non-GAAP operating income rate of about 3.7%. This forward guidance suggests a cautious but steady outlook, acknowledging ongoing challenges while highlighting areas of potential stability and growth.

Domestic performance in Q2 showed a revenue decrease of 3.0% to $8.62 billion, driven by a 2.3% decline in comparable sales. Key areas of weakness included appliances, home theater, and gaming, though growth was observed in tablets, computing, and services. Notably, domestic online revenue fell by 1.6%, but online sales still accounted for 31.5% of total domestic revenue, up from 31.0% last year. The improvement in the gross profit rate to 23.5% from 23.1% was largely attributed to stronger performance in the services category, despite lower product margins.

Internationally, Best Buy faced a 4.0% decline in revenue to $665 million, primarily due to unfavorable foreign exchange rates and a 1.8% drop in comparable sales. The international gross profit rate decreased slightly to 23.9% from 24.2%, reflecting higher supply chain costs. However, SG&A expenses in the international segment were reduced to 21.4% of revenue, down from 21.5% the previous year, due to lower advertising costs and favorable currency impacts.

In terms of shareholder returns, Best Buy allocated $301 million in Q2 FY25 through dividends and share repurchases. The company plans to return approximately $500 million to shareholders for the full fiscal year. Additionally, a quarterly dividend of $0.94 per share has been authorized, payable on October 10, 2024, demonstrating Best Buy's commitment to returning value to shareholders while managing its financial strategy prudently.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.