Best Buy is contending with short-term headwinds, but the electronics retailer is expecting business to pick up by fiscal 2025.
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Best Buy stock rose Thursday despite mixed earnings, as investors rallied over the electronic retailer’s long-term outlook.
For fiscal 2023, Best Buy (ticker: BBY) said it anticipates revenue could range between $49.3 billion and $50.8 billion with adjusted earnings of $8.85 to $9.15 a share. Analysts were forecasting Best Buy would generate $50.89 billion in revenue and earnings of $9.29 a share.
Comparable-store sales at Best Buy decreased 2.3% during the fourth quarter, and the company expects these to decline throughout the 2023 fiscal year, predicting a decrease of between 1% and 4%.
“The two largest variables in our FY23 financial outlook on a year-over-year basis are the short-term industry decline as we lap high growth and government stimulus, and the investment in our new membership program, Best Buy Totaltech, which we believe will drive longer-term value,” said Matt Bilunas, Best Buy’s chief financial officer.
But on a longer-term basis, Best Buy believes these headwinds will subside, and it predicts enterprise revenue could rise to a range of $53.5 billion to $56.5 billion by 2025, ahead of analysts’ expectations. Non-GAAP operating income could be around $3.4 billion to $3.8 billion.
Best Buy stock was up 8% to $109.18 in premarket trading on Thursday.
The company also raised its quarterly dividend 26% to 88 cents a share, and plans to spend approximately $1.5 billion on share repurchases in 2023.
Best Buy reported fourth-quarter adjusted earnings of $2.73 a share on $16.4 billion. Consensus estimates called for earnings per share of $2.72 on revenue of $16.6 billion.
The holiday quarter was impacted by “more constrained inventory than expected” and temporary reduction in store hours due to the Omicron variant, said Corrie Barry, chief executive.
The company wrapped up its 2022 fiscal year with $51.8 billion in sales, narrowly missing estimates for $52 billion. Earnings were $10.01 a share, coming in 1 cent lower than forecasts for $10.02.
Expectations weren’t particularly high going into the key holiday season. The company provided guidance in November when it reported so-so results, and a majority of analysts tracked by FactSet have been bringing their EPS estimate for the quarter down since that report.
Those more measured expectations are still rolling in, from both bulls and those on the sidelines, but some worry that Best Buy could miss a lowered bar.
On Monday, Wells Fargo ’s Zachary Fadem maintained a Neutral rating on the stock, writing that he sees the “shares in a tricky spot as recent checks suggest a below-consensus print.” Moreover, he thinks fiscal 2023 could be a “give back year” in terms of margins.
Best Buy was a big pandemic winner, as consumers used their stimulus checks to buy electronics for their homes, for both work and entertainment. And the company said it was seeing a permanent shift in increased demand for technology and consumer electronics.
That said, with so many laptops and home theaters already purchased, worries about its ongoing momentum have surfaced. Just 12 of the 29 analysts tracked by FactSet have a Buy rating or the equivalent on the shares.
Raymond James analyst Bobby Griffin reiterated an Outperform rating on Best Buy Monday but lowered his price target by $30 to $105. He writes that the move comes amid lower valuation across retail—due to headwinds like inflation and macro fears—but company-specific issues as well. “Admittedly, we are cautious ahead of the investor event, as Best Buy clearly faces a difficult comparison…following two years of Covid stay at home/work from home behaviors. That said, we believe expectations are fairly low [and] the long-term risk/reward balance…remains favorable.”
“Cautious” is a word that Wedbush Seth Basham also used to describe his own outlook for the upcoming quarter on Monday. He warns that comparable sales may disappoint given “slowing demand in certain categories as consumers pulled purchases forward fearing supply chain issues, Omicron cases began to rise (denting store traffic) and inflation rose in certain categories including TVs.” He has a Neutral rating on the stock.
On the bright side, Best Buy is now trading at just over 10 times forward earnings, below its five-year average and a number of big peers like Target ( TGT
) and Walmart (WMT).
Write to Teresa Rivas at [email protected]
