Stock of Best Buy Jumps After Profit Beat Thanks to Gaming Growth, Which Offsets Weakness in Smartphones

Best Buy Inc. witnessed a surge in its stock towards a seven-month high on Thursday following the release of quarterly results that exceeded expectations. The growth in gaming sales proved instrumental in offsetting the ongoing challenges faced by other consumer electronics categories, such as smartphones and tablets.

‍

The company attributed an improvement in gross margin to an expansion of its paid membership base, which helped counteract unfavorable margin rates on specific products. In premarket trading, Best Buy's stock rose by 4.2%, positioning it to open at levels not seen since July 31.

‍

Chief Executive Corie Barry addressed the holiday sales period during the post-earnings call with analysts. While Black Friday and cyber week performances aligned with expectations, there was a more substantial "sales lull" in December than anticipated. However, customer demand rebounded, surpassing expectations in the four days leading up to Christmas.

‍

For the fiscal fourth quarter ending Feb. 3, net income decreased to $460 million, or $2.12 per share, compared to $495 million, or $2.23 per share, in the corresponding period the previous year. Adjusted earnings per share, excluding nonrecurring items like $169 million in restructuring charges related to employee-layoff benefits, amounted to $2.72, surpassing the FactSet consensus of $2.52.

‍

Gross margin saw an improvement, reaching 20.5% compared to 20.0%. This enhancement was attributed to the U.S. gross profit rate rising to 20.4% from 19.8%, compensating for the decline in the international rate to 21% from 21.7%. Although revenue experienced a marginal 0.6% decrease to $14.65 billion, it exceeded the FactSet consensus of $14.56 billion. Notably, overall same-store sales, reflecting sales of stores open for at least a year, declined 4.8%, outperforming the FactSet consensus of a 5.4% decline.

‍

This quarter marked the ninth consecutive period of year-over-year declines in both revenue and same-store sales. In the U.S., revenue fell 0.9% to $13.4 billion, with same-store sales declining by 5.1%, surpassing the expected 5.4% fall. The primary contributors to the drop in U.S. same-store sales were identified as weakness in home theater, appliances, mobile phones, and tablets, while gaming sales exhibited growth. Internationally, revenue increased by 2.7%, although same-store sales declined by 1.4%.

‍

Looking ahead, Best Buy anticipates adjusted EPS for fiscal 2025 in the range of $5.75 to $6.20 and revenue between $41.3 billion to $42.6 billion. This compares to the FactSet consensus for EPS of $6.16 and revenue of $42.33 billion. Barry outlined the ongoing challenges facing the retail and consumer electronics industries, citing factors such as inflation, consumer prioritization of spending on services and experiences over goods, a stagnant housing market, and a return to normal demand levels in the consumer electronics market post the COVID pandemic's initial surge.

‍

Barry, however, expressed optimism about the transient nature of these issues and highlighted potential catalysts for improvement, including low unemployment rates, growing consumer confidence, and the beginning of a housing market rebound. She envisions the current year as one of "increasing industry stabilization" and intends to focus on enhancing the customer experience and industry pricing.

‍

Best Buy's stock has demonstrated a 12.6% gain over the past three months through Wednesday, outpacing the Consumer Discretionary Select Sector SPDR ETF's 8.4% increase and the S&P 500's 11.4% advance during the same period.

‍