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Best Buy's Q3 Earnings Miss Estimates, Comparable Sales Dip 2.9% Y/Y
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Best Buy Co., Inc. (BBY - Free Report) reported third-quarter fiscal 2025 results, wherein both revenues and earnings missed the Zacks Consensus Estimate. Both the top and bottom lines also declined year over year.
Best Buy stock lost 2.6% on Nov. 26, due to soft quarterly results and the lowered view for the fiscal year. However, the company maintained its adjusted operating margin view.
Over the past six months, this Zacks Rank #2 (Buy) company has gained 32.7% compared with the industry’s 23% growth.
An Insight Into BBY’s Quarterly Performance
Adjusted earnings of $1.26 per share lagged the Zacks Consensus Estimate of $1.30. The bottom line fell 2.3% from $1.29 per share in the year-ago period.
Enterprise revenues dipped 3.2% from the prior-year quarter's level of $9,445 million. The figure missed the consensus estimate of $9,631 million. Enterprise comparable sales dropped 2.9% year over year. We had expected enterprise comparable sales to fall 1%.
Best Buy Co., Inc. Price, Consensus and EPS Surprise
Gross profit dropped slightly year over year to $2.22 billion while the gross margin expanded 60 basis points (bps) to 23.5%. We had projected adjusted gross margin expansion of 30 basis points.
Adjusted operating income was $351 million, down from $369 million in the year-ago quarter. The adjusted operating margin dipped 10 bps to 3.7%.
Adjusted selling, general and administrative (SG&A) expenses of $1.9 billion were flat year over year. SG&A, as a percentage of sales, increased 70 bps to 19.8%. We had estimated adjusted SG&A expenses to deleverage 40 bps.
BBY’s Domestic and International Operations
The Domestic segment’s revenues fell 3.3% to $8,697 million. This year-over-year decline was induced by a comparable sales decrease of 2.8%. From a merchandising perspective, the key contributors to the comparable sales decline were appliances, home theater and gaming. The decline was offset by growth in the tablets, computing and services categories.
We expected a 1.1% decline in the Domestic segment's revenues. The segment’s online revenues of $2.73 billion dropped 1% on a comparable basis. As a percentage of total domestic revenues, online revenues were 31.4% compared with 30.6% last year.
The segment’s gross margin increased 70 bps to 23.6% due to enhanced financial results from the services category, including its membership offerings. This was partly offset by reduced profit-sharing revenues from its private label and co-branded credit card arrangement and low product margin rates. The segment’s adjusted operating income was $338 million, lower than $352 million recorded last year. As a percentage of sales, the metric was flat year over year at 3.9%.
In the International segment, revenues slipped 1.6% year over year to $748 million. This decrease was due to the adverse impact of foreign exchange rates and a 3.7% decline in comparable sales. This is partly offset by revenues from Best Buy Express stores opened in Canada in fiscal 2025. The segment’s adjusted operating income was $13 million or 1.7% of revenues, lower than $17 million or 2.2% reported in the year-ago quarter.
This segment’s gross margin increased 40 bps to 22.5% due to growth in the higher-margin services category.
BBY’s Financial Snapshot
Best Buy ended the quarter with cash and cash equivalents of $643 million, long-term debt of $1.1 billion and a total equity of $3.1 billion.
In the fiscal third quarter, BBY returned about $339 million to its shareholders through dividends of $202 million and share repurchases of $137 million. Year to date through the fiscal third quarter, Best Buy returned $892 million through dividends of $607 million and share repurchases of $285 million. Management intends to spend roughly $500 million on share repurchases during the current fiscal year.
In addition, the company’s board has authorized a regular quarterly dividend of 94 cents per share in cash, payable Jan. 7, 2025, to shareholders of record as of Dec.17, 2024.
What to Expect From Best Buy in Fiscal 2025?
Management revised the view for fiscal 2025 while reiterating guidance for adjusted operating margin. For fiscal 2025, Best Buy now anticipates revenues to be in the range of $41.1-$41.5 billion, lower than the prior guidance of $41.3-$41.9 billion. BBY envisions comparable sales to decline in the band of 2.5-3.5% compared with the prior estimate of 1.5-3% decline. The company reported consolidated revenues of $43.5 billion and comparable sales decline of 6.8% in fiscal 2024.
The company reiterated its guidance for adjusted operating margin of 4.1-4.2% compared with 4.1% in fiscal 2024. This reflects a slight expansion from fiscal 2024 on a 52-week basis.
Management now foresees adjusted earnings per share to be between $6.10 and $6.25 compared with the prior forecast of $6.10-$6.35. Capital expenditure is anticipated to be $750 million.
For fourth-quarter fiscal 2025, Best Buy forecasts comparable sales to be flat to decline 3% year over year and adjusted operating margin in the bracket of 4.6-4.8%.
The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 13.6% from the year-ago figure. DECK delivered an average earnings surprise of 41.1% in the trailing four quarters.
Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 6.8%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales indicates growth of 13.4% from the year-ago figure.
Abercrombie, a leading casual apparel retailer, currently carries a Zacks Rank of 2. ANF delivered an earnings surprise of 16.8% in the last reported quarter.
The consensus estimate for Abercrombie’s current financial-year sales indicates growth of 13% from the year-ago figure.
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Best Buy's Q3 Earnings Miss Estimates, Comparable Sales Dip 2.9% Y/Y
Best Buy Co., Inc. (BBY - Free Report) reported third-quarter fiscal 2025 results, wherein both revenues and earnings missed the Zacks Consensus Estimate. Both the top and bottom lines also declined year over year.
Best Buy stock lost 2.6% on Nov. 26, due to soft quarterly results and the lowered view for the fiscal year. However, the company maintained its adjusted operating margin view.
Over the past six months, this Zacks Rank #2 (Buy) company has gained 32.7% compared with the industry’s 23% growth.
An Insight Into BBY’s Quarterly Performance
Adjusted earnings of $1.26 per share lagged the Zacks Consensus Estimate of $1.30. The bottom line fell 2.3% from $1.29 per share in the year-ago period.
Enterprise revenues dipped 3.2% from the prior-year quarter's level of $9,445 million. The figure missed the consensus estimate of $9,631 million. Enterprise comparable sales dropped 2.9% year over year. We had expected enterprise comparable sales to fall 1%.
Best Buy Co., Inc. Price, Consensus and EPS Surprise
Best Buy Co., Inc. price-consensus-eps-surprise-chart | Best Buy Co., Inc. Quote
Gross profit dropped slightly year over year to $2.22 billion while the gross margin expanded 60 basis points (bps) to 23.5%. We had projected adjusted gross margin expansion of 30 basis points.
Adjusted operating income was $351 million, down from $369 million in the year-ago quarter. The adjusted operating margin dipped 10 bps to 3.7%.
Adjusted selling, general and administrative (SG&A) expenses of $1.9 billion were flat year over year. SG&A, as a percentage of sales, increased 70 bps to 19.8%. We had estimated adjusted SG&A expenses to deleverage 40 bps.
BBY’s Domestic and International Operations
The Domestic segment’s revenues fell 3.3% to $8,697 million. This year-over-year decline was induced by a comparable sales decrease of 2.8%. From a merchandising perspective, the key contributors to the comparable sales decline were appliances, home theater and gaming. The decline was offset by growth in the tablets, computing and services categories.
We expected a 1.1% decline in the Domestic segment's revenues. The segment’s online revenues of $2.73 billion dropped 1% on a comparable basis. As a percentage of total domestic revenues, online revenues were 31.4% compared with 30.6% last year.
The segment’s gross margin increased 70 bps to 23.6% due to enhanced financial results from the services category, including its membership offerings. This was partly offset by reduced profit-sharing revenues from its private label and co-branded credit card arrangement and low product margin rates. The segment’s adjusted operating income was $338 million, lower than $352 million recorded last year. As a percentage of sales, the metric was flat year over year at 3.9%.
In the International segment, revenues slipped 1.6% year over year to $748 million. This decrease was due to the adverse impact of foreign exchange rates and a 3.7% decline in comparable sales. This is partly offset by revenues from Best Buy Express stores opened in Canada in fiscal 2025. The segment’s adjusted operating income was $13 million or 1.7% of revenues, lower than $17 million or 2.2% reported in the year-ago quarter.
This segment’s gross margin increased 40 bps to 22.5% due to growth in the higher-margin services category.
BBY’s Financial Snapshot
Best Buy ended the quarter with cash and cash equivalents of $643 million, long-term debt of $1.1 billion and a total equity of $3.1 billion.
In the fiscal third quarter, BBY returned about $339 million to its shareholders through dividends of $202 million and share repurchases of $137 million. Year to date through the fiscal third quarter, Best Buy returned $892 million through dividends of $607 million and share repurchases of $285 million. Management intends to spend roughly $500 million on share repurchases during the current fiscal year.
In addition, the company’s board has authorized a regular quarterly dividend of 94 cents per share in cash, payable Jan. 7, 2025, to shareholders of record as of Dec.17, 2024.
What to Expect From Best Buy in Fiscal 2025?
Management revised the view for fiscal 2025 while reiterating guidance for adjusted operating margin. For fiscal 2025, Best Buy now anticipates revenues to be in the range of $41.1-$41.5 billion, lower than the prior guidance of $41.3-$41.9 billion. BBY envisions comparable sales to decline in the band of 2.5-3.5% compared with the prior estimate of 1.5-3% decline. The company reported consolidated revenues of $43.5 billion and comparable sales decline of 6.8% in fiscal 2024.
The company reiterated its guidance for adjusted operating margin of 4.1-4.2% compared with 4.1% in fiscal 2024. This reflects a slight expansion from fiscal 2024 on a 52-week basis.
Management now foresees adjusted earnings per share to be between $6.10 and $6.25 compared with the prior forecast of $6.10-$6.35. Capital expenditure is anticipated to be $750 million.
For fourth-quarter fiscal 2025, Best Buy forecasts comparable sales to be flat to decline 3% year over year and adjusted operating margin in the bracket of 4.6-4.8%.
More Key Picks
We have highlighted three more better-ranked stocks, namely Deckers (DECK - Free Report) , Boot Barn (BOOT - Free Report) and Abercombie (ANF - Free Report) .
Deckers, a footwear and accessories dealer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 13.6% from the year-ago figure. DECK delivered an average earnings surprise of 41.1% in the trailing four quarters.
Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 6.8%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales indicates growth of 13.4% from the year-ago figure.
Abercrombie, a leading casual apparel retailer, currently carries a Zacks Rank of 2. ANF delivered an earnings surprise of 16.8% in the last reported quarter.
The consensus estimate for Abercrombie’s current financial-year sales indicates growth of 13% from the year-ago figure.