Why is Best Buy (BBY) up 15.9% since its last earnings report?

It’s been a month since Best Buy’s (BBY) last earnings report. Shares have risen about 15.9% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Best Buy headed for a slowdown? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

Best Buy’s fourth-quarter earnings beat estimates, sales grow YoY

Best Buy reported its fourth-quarter fiscal 2021 results, with the top and bottom lines increasing year over year. Additionally, quarterly earnings surpassed the Zacks Consensus Estimate. However, the sale fell short of consensus.

Sales increased significantly in both the domestic and international segments. Online sales remained high in the domestic channel. The Management Board emphasized that stores play an important role in online sales. Well, these factors contributed to revenue growth in the reported quarter. Additionally, management provided comparable sales forecasts for fiscal year 2022 and the first quarter.

Details Q4

Best Buy generated adjusted earnings per share of $3.48, which topped the Zacks Consensus Estimate of $3.46. Moreover, the bottom line increased by 20% compared to the profit of $2.90 reported in the year-ago quarter.

Enterprise revenues rose 11.5% year-over-year to $16,937 million, but missed the Zacks Consensus Estimate of $17,194 million. Comparable corporate sales increased 12.6% compared to the 3.2% increase reported in the prior-year quarter. Moreover, revenues increased in both the Domestic and International segments.

We note that adjusted gross profit increased 8.4% to $3,509 million. However, adjusted gross margin declined 60 basis points to 20.7%. Importantly, adjusted operating income was $1,161 million, compared to $986 million reported in the prior-year quarter. Re-adjusted operating margin increased 40 basis points to 6.9%.

Segment details

Domestic segment revenues increased 11.2% to $15,400 million. Year-over-year growth was primarily due to comparable sales growth of 12.4%, partially offset by loss of revenue due to permanent store closures last year. The company saw comparable sales growth across most of its categories, with the biggest drivers being computers, gaming, home theater, virtual reality and home appliances. These were partially offset by a decline in sales of mobile phones and headphones.

Meanwhile, comparable online sales rose 89.3% to $6.66 billion. As a percentage of total domestic revenues, online revenues increased by almost 43.2% compared to 25.4% last year.

We note that segment gross margin decreased 30 basis points year-over-year to 20.9% due to higher supply chain costs resulting from an increased mix of online revenues.

Turning to the international segment, revenues increased by 14% to $1,537 million. This growth was supported by comparable sales growth of 14.9% and gains from favorable foreign exchange rates of 160 basis points. Segment gross margin increased 100 basis points to 21.6%.

Other details

Best Buy ended the quarter with cash and cash equivalents of $5,494 million, long-term debt of $1,253 million and total equity of $4,587 million.

During the quarter, the company returned a total of $392 million to shareholders through $250 million in share repurchases and $142 million in dividends. Additionally, the company announced a 27% increase in its quarterly dividend rate to 70 cents per share. The increased dividend will be paid on April 8, 2021 to shareholders of record as of March 18. In addition, management approved a new $5 billion stock repurchase authorization plan. This replaces the company’s existing stock repurchase authorization, which had $1.7 billion remaining at the end of fiscal 2021. The company expects to repurchase at least $2 billion of stock in fiscal 2022. Capital expenditures for fiscal 2022 are expected to be in the range of $750 million to $850 million.

Additionally, in recognition of employee efforts in the face of the pandemic, the company will provide bonuses worth $500 to full-time employees and $200 to part-time employees in the coming weeks.

Conductivity

For fiscal year 2022, management expects comparable enterprise sales to range from a decline of 2% to an increase of 1%. The earnings outlook is based on the assumption that consumers will resume or accelerate spending in areas that have slowed during the pandemic, such as travel and outdoor dining, particularly in the second half of the year. Additionally, online sales are expected to account for 40% of domestic sales. Gross margin is expected to be slightly lower than in fiscal 2021.

In the first quarter of fiscal 2022, the company expects enterprise comparable sales to grow by nearly 20%. Additionally, gross margin is expected to be slightly lower than in the first quarter of fiscal 2021.

How have estimates changed since then?

Investors have witnessed an upward trend in estimate revisions over the last month. As a result of these changes, the consensus estimate moved by 18.48%.

VGM results

Right now, Best Buy has a strong Growth Score of A, although it lags well behind its Momentum Score of D. However, the stock is rated an A on the value side, putting it in the top quintile for this investment strategy.

Overall, the company’s Total VGM Score is A. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for the stock are trending upwards, and the scale of these revisions looks promising. Notably, Best Buy has a Zacks Rank #4 (Sell). We expect a below-average rate of return on stocks in the coming months.

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