Best Buy proves brick and mortar is here to stay

Consumer electronics retailer Best Buy (NYSE: BBY) is the latest and greatest pure electronics big box store. They outlasted previous competitors like Circuit City, CompUSA, The Wiz, Erol's, Best Products, Radio Shank, H.H. Gregg, and Sam Goody's to name a few. Its main competitors these days are either private companies like Microcenter or basic electronics and other consumer products like Walmart (NYSE: WMT), Costco Wholesale (NASDAQ: COST) and Target (NYSE: TGT ). Expectations were low heading into its third-quarter 2022 earnings report, especially since 2021 has been such a peculiar year for PC and TV sales. They beat their own lowered guidance for Q3 2022, allowing them to raise estimates for full-year 2023. The one-two combination sent stocks soaring and breaking through the downtrend channel on high volume. As the consumer electronics segment was in high demand amid the pandemic, investors worried about what the situation would look like after normalization. Since Best Buy is literally the last man standing, in addition to regional player Conn's (NASDAQ: CONN), they act as a weather bell for the consumer electronics segment. The company said normalization is back this holiday shopping season with shopping concentrated during Black Friday through Cyber ​​Monday and the two weeks leading up to December 25. The company also resumed its $1 billion share buyback program in November 2022.

MarketBeat.com - MarketBeat

Falling expectations amplify strong earnings momentum

On November 22, 2022, Best Buy released its fiscal third quarter 2022 results for the quarter ending October 2022. The company reported earnings per share (EPS) of $1.38 excluding one-time items versus to consensus analyst estimates for earnings of $1.02, a beat of $0.36. Revenue fell (-11.1%) year-over-year (YoY) to $10.59 billion, beating analyst consensus estimates of $10.30 billion. Domestic revenues fell (-10.8%) year-on-year, due to lower model sales (-10.5%), as the street expected (-12%). While they showed negative year-on-year metrics like consumer electronics sales down (-12.8%), computing and mobile phones down (-11.4%) and sales of devices down (-9.6%), the market let up on exceptional comps in 2021 due to pent-up demand triggered by the pandemic. Best Buy managed to easily beat its own lowered bar, which allowed it to raise the forecast for the year 2023. It should be noted that BBY was proficient in cost cutting, proper inventory sizing and reductions staff to be able to boost promotions to help beat estimates. Its general and administrative expenses fell nearly (-9%) thanks to cost reduction to $1.77 billion.

Normalization of the holiday season

Corie Barry, CEO, makes specific remarks on the upcoming holiday shopping season: "We expect shopping patterns to be more like historic holiday periods than what we've seen over the past two Specifically, we expect there will be more customer shopping activity focused on the week of Black Friday, Cyber ​​Monday and the two weeks leading up to December 25."

Analysts are still not convinced

Investors want to know what will happen after Christmas. Many analysts expressed some skepticism as the company essentially beat its own lowered guidance for Q3 2022. The strong push in promotions and discounts weighed on domestic gross margins from (-150 basis points) to 21, 9% year-over-year and non-GAAP operating margins fell by (-190 basis points) 3.9%. Margin compression was one of the factors behind its adjusted EPS drop (-34%) year-over-year. UBS analyst Michael Lasser kept his Hold rating on Best Buy shares with a price target of $76, lower than where it traded at $80 after the earnings release. Truist...