Best Buy has continued its solid run as consumer confidence reaches its highest point since October 2000. In Q2, the electronics retailer took advantage of increased traffic to improve financial results across the board:
- Comparable store sales jumped 6.2%;
- Revenue rose 4.9% to $9.38 billion, up from $8.9 billion a year ago, as domestic revenue rose 4.4% to $8.6 billion and international revenue rose 10.8% to $740 million; and
- Net income rose from $209 million to $244 million, while adjusted earnings per share (EPS) reached $0.91, well ahead of the $0.83 expected.
The better-than-expected results and the raised full-year outlook still somehow weren’t enough for Wall Street analysts, since its Q3 outlook didn’t reach expectations. Best Buy projects Q3 revenue of $9.4 billion to $9.5 billion with non-GAAP EPS of $0.79 to $0.84, while Wall Street was expecting $0.92 cents per share on revenue of $9.49 billion. On Aug. 28, the morning of the earnings release, Best Buy stock dipped more than 7.7% despite the overwhelmingly positive Q2.
Practically the only true negative among the Best Buy results, but the one that is likely the top cause for concern for shareholders and investors, is a slowdown in online growth. Q2 domestic online sales rose 10.1%, a slight decline from 12% growth in Q1 and a major dip from the 31.2% increase year-over year.Online sales make up 14% of Best Buy’s total domestic sales and represent a 15% share of the U.S. consumer electronics market as of March 2018.
Additionally, Best Buy’s continued investments in supply chain and transportation are expected to continue pressuring margins, with Best Buy's Q2 domestic gross profit rate falling to 23.8% from 24% last year. These investments are a major part of the company’s ongoing Best Buy 2020 growth strategy, as it seeks to add more value to its product offerings and address human needs. With the national rollout of its new Total Tech Support service and the $800 million acquisition of health and personal emergency response services company GreatCall this month, expect margins to continue tightening up in the coming quarters.
In an earnings call, CEO Hubert Joly revealed that Best Buy increased the number of advisors in its In-Home Advisor program, from 300 in September 2018 to more than 430 at the end of Q2. The In-Home Advisors provide free in-home consultations to help customers address their needs across a full range of Best Buy products and services. With the program designed to be “the beginning of a deeper and more relationship-based experience with Best Buy over the long term,” it’s clear retailer is focused on looking beyond the next quarter and improving customer retention.
"Best Buy continued to build on its track record of excellent execution, with positive Q2 results across the board, including healthy top line expansion and comp store sales velocity, margins that are being largely maintained despite continuing investments, and meaningful online sales growth that continues despite the 'online maturity' of many of its product categories," Moody's Lead Retail Analyst Charlie O'Shea said in commentary provided to Retail TouchPoints. "All in all, Best Buy continues to solidify its position as one of the strongest performers in retail."