- Industries are returning to somewhat normal activity heading into the shopping season
- Consumers are willing to spend a little more this year to make this holiday season special
- Analysts seem somewhat confident that patience could pay off in the near future
Nearly two-dozen analysts offering 12-month price targets for Best Buy Co Inc (NYSE: BBY)
have established a range of $56 to $110 with a median consensus estimate of $80. This has resulted in a HOLD rating, which has been the same since July. On the other hand, Nasdaq analysts suggest that BBY is worth a BUY right now, perhaps they may have been suitably in decline during the later part of the pandemic but could start to see some recovery. It could be that many consumers chose to spend money on home entertainment and appliance upgrades in the middle of the pandemic since most of the world was still closed. When pandemic funds and personal savings started to dwindle, most consumers cut back on discretionary spendings, like home entertainment.
Holiday Shopping and Inflation Could Be Huge Factors Ahead
That said, industries are returning to somewhat normal activity and we are heading into the holiday season. This is typically a time when companies like Best Buy see a bump in sales, and some analysts may be anticipating that an increase in numbers will boost earnings. And with holiday travel soaring above pandemic levels, consumers are willing to spend a little more this year to make this holiday season extra special.
At the same time, inflation concerns have contributed to the company cutting its sales forecast. This, of course, has also led to recent job cuts, which is the opposite of what retailers typically do around this time of year. At the same time job cuts remain somewhat common right now—from small startups to massive retailers like Walmart (NYSE: WMT) and Amazon (NASDAQ: AMZN) —so the downward trend is not isolated to just a few companies.
Quarterly Earnings Waver As Retail Returns, but Annual Earnings Decline
While many other specialty retailers may be struggling right now, Best Buy can say—in the very least—expect positive earnings. It may not seem like much, but considering they have been on a steady climb since last year this is certainly not something that should be dismissed. For the current quarter, Best Buy is holding steady with an EPS of $1.04 on sales of $10.3B
Looking back to the third quarter of last year, we can see a trend of reported earnings consistently meeting or beating the estimate, save but one quarter.
For example, reported earnings beat the estimate in 2021 Q3 and Q4. In the first quarter of 2022, the estimate was spot on but by the second quarter of 2022, earnings had already buoyed back up. While this is certainly favorable, the margins are getting a little smaller.
On annual basis, though, earnings hint at a different narrative. In 2018, the earnings not only beat the estimate of $5.18 but the $5.32 reported earnings obliterated the range. 2019 saw more of the same, with the reported earnings of $6.07 besting the estimate but only slightly missing the top of the range.
By 2020, annual earnings beat the estimate again, settling a little more comfortably at the higher end of the range. However, the numbers for 2021 continue this downward trend with the reported earnings of $10.01 failing to meet the estimate by a single penny.
Sales Are Down and Struggling
Best Buy reported its Q2 results for the fiscal year 2023 at the end of August. Unfortunately, sales slipped more than 12 percent. That is far from the 19.6 percent growth they posted in the same quarter the year prior. As might be expected, every metric for Q2 FY23 is down year-over-year. For example, enterprise revenue is down from $11,849 to $10,329. Operating income is also down, of course, from 6.7 percent to 3.6 percent (GAAP as a % of revenue) and from 6.9 percent to 4.1 percent (non-GAAP as a % of revenue). Similarly, diluted GAAP and non-GAAP EPS is down from $2.90 t $1.35 and from $2.98 to $1.54, respectively.
Quarterly sales reflect the decline in a more steady fashion. Starting in Q3 of 2021, sales looked very good: Best Buy posted sales of $11.9B beating the $11.6B consensus estimate, easily satisfying the $11.2B to $12.3B range. The following quarter, reported sales of $16.4B failed to outperform the consensus estimate of $16.6B.
For the first quarter of 2022, sales saw a bit of a bump, beating the $10.4B estimate but not the 9.8B to 11.0B range. Still, a promising development to say the least. Unfortunately, these gains failed to trend as sales only met the consensus estimate of $10.3B in Q2 of 2022. It is safe to say there is great anticipation to see which direction these numbers go when Best Buy reports next.
Annually, sales show similar movement. In 2018, the reported sales of $42.9B barely beat the range. The same is true of the $43.6B reported in 2019. But 2020 paints a starker picture. Reported sales of $47.3B slightly missed the estimate. The same is true for the $51.8B reported in 2021. So while sales are increasing, they have been less and less likely to beat the estimate the past few years. Still, analysts seem somewhat confident that patience could pay off in the near future, hopefully.
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