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Best Buy's Fourth-Quarter Earnings Buoyed by Strong Holiday Sales

Posted on Thursday, February 27th, 2020 by Steve Anderson

Best Buys Fourth-Quarter Earnings Buoyed by Strong Holiday Sales

There's a dichotomy between mall-focused retail and stand-alone store retail that seems to be growing with each new earnings report that emerges. While stores like Foot Locker and American Eagle falter, and perennial anchor stores from Sears (OTCMKTS: SHLDQ) to Macy's (NYSE: M) to JCPenney (NYSE: JCP) report losses and closures, stores like Home Depot (NYSE: HD), Lowe's (NYSE:LOW), and others show improvements. One recent addition to help drive this dichotomy further outward is Best Buy (NYSE: BBY), who offered up an earnings report full of exceeded expectations and a surprisingly upbeat outlook.

Best Buy's Basics Delivered Value

First, a look at the numbers. Best Buy delievered exceeded expectations on nearly every front. Earnings per share was expected in an Refinitiv study to hit $2.75 per share. Best Buy delivered $2.90 per share. The expected revenue was $15.05 billion, which Best Buy beat to reach $15.2 billion. Same-store sales growth was already expected to be 1.9%, but Best Buy delivered 3.2% growth in that period.

The good news for Best Buy last quarter was clear; holiday shopping proved better than expected, as shoppers took to the retailer to land new appliances and headphones, among other things. Whether as gifts for others or as gifts for themselves, customers bought in a big way. Mobile devices, including tablets, and computers also lent spark to Best Buy's bottom line.

The only real decline for Best Buy in 2019, noted Corie Barry, Best Buy's CEO, was the video game front. This is to be expected as 2020 is set to be the start of a new console generation, though some are already wondering if coronavirus concerns will force an unexpected delay.

New Investments Kicked In Excellent Returns as Well

Moreover, Best Buy saw some newer investments pay off. During the holiday season, the company offered up thousands of items available as next-day delivery, requiring neither membership in any program nor a minimum purchase order, giving it a distinct edge against simply turning to Amazon to shop.

Additionally, customers could pick up their items themselves in an hour after placing an order, which opened up the possibility of using alternate pickup locations. Customers in New York City and Chicago enjoyed the option to pick up orders at UPS (NYSE: UPS) locations, while New Yorkers also got access to CVS (NYSE: CVS) as a drop-off point.

Just to round it out, Best Buy also saw some jumps in its installation business. Its Total Tech Support offering—an annual membership costing shoppers $199.99—is proving popular with customers either installing or having trouble with smart home systems. Since the smart home market is a growing one, having a ready source of tech support on hand is welcome. Best Buy's recent expansions into the healthcare market have also proven welcome, as the company uses technology to help improve healthcare costs, a sore point for many. Back in the third quarter, Best Buy noted that around a million seniors already used Best Buy's health services,

2020 May Not Be Best Buy's Year

We've seen a lot of positives come out of Best Buy so far, thanks to a clear pattern of diversification and a clear improvement in its customer experience delivery. The stores best placed to compete with Amazon are the stores that are developing their online presences. Best Buy actually ranks as number seven on the eMarketer list of top 10 ecommerce firms in the United States now with 1.3% of the market. That's a long way behind number one-ranked Amazon with 38.7%, but it's enough to make it a competitor.

Naturally, COVID-19 coronavirus fears are also weighing on the company, though it expects much of that impact to be out of the picture with the second half of the year. That's not conclusive, but it's hardly out of line; most illnesses tend to retreat when people have greater access to fresh air and sunshine.

Even here, though, Best Buy's increased diversification may save it from the worst impacts of coronavirus. With people more likely than ever to self-isolate, it's a lot easier to do that if you have the computer gear to telecommute and the home theater gear to make your stay at home more enjoyable. Throw in delivery, with reduced contact with humanity, and the picture gets even brighter. Supply issues, however, will be a different matter.

Still, Best Buy is looking pretty bright in these less-than-certain times, and has already demonstrated the power of diversification effectively. Its healthcare connections and improved customer experience won't hurt either as more customers turn to online shopping. Best Buy may have just what it needs to come out on the other side of these upcoming troubles in the market, and that might make Best Buy a better buy than some may expect.

Companies Mentioned in This Article

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Macy's (M)$4.81flatN/A2.64Hold$15.23
J C Penney (JCP)$0.27flatN/A-0.32Hold$1.00
Lowe's Companies (LOW)$82.20flat2.68%15.03Buy$124.67
Home Depot (HD)$178.70flat3.36%17.43Buy$239.13

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