After Target (TGT) lowered its 2023 earnings guidance when it released its Q2 results on Aug. 16, Wall Street held its collective breath until fellow big box retailer Best Buy (BBY) did the same two weeks later. However, the electronics and appliance retailer surprised just about everyone when it released its fiscal 2024 Q2 results on Aug. 29, recouping its previous share price decline in a single day, notes Jim Pearce, editor of Personal Finance.
Although Best Buy reduced the top end of its range for fiscal year 2024 total revenue from $45.5 billion to $44.5 billion, it left the bottom end of the range unchanged at $43.8 billion. At the same time, it increased the bottom end of its estimate for comparable sales decline to 4.5% from 3.0%, while leaving the top end the same at 6.0%.
As for the second quarter, those results came in at the high end of the muted guidance provided by Best Buy. Compared to the same period last year, total domestic revenue fell 7.1% due primarily to a 6.3% decline in comparable sales.
International sales fell 8.8% during the quarter to $693 million. Best Buy attributed that result to “a comparable store sales decline of 5.4% and the negative impact of approximately 340 basis points from foreign currency exchange.” In terms of overall revenue, international sales of $19 million comprised 2.7% of revenue this year compared to $28 million, or 3.7% of total revenue, the year before.
On the plus side, Best Buy’s domestic gross profit rate increased during the quarter from 22.0% a year ago to 23.1% this year. The company credited that improvement to higher product margin rates, better performance from its membership offerings, and cost savings from its healthcare plan.
As expected, Best Buy left its quarterly cash dividend unchanged at 92 cents per common share payable on Oct. 10 to shareholders of record as of Sept. 19. In addition, the company repurchased $79 million of its common shares during the second quarter, the same amount as the previous quarter.
To a large extent, future expectations assume the Fed will discontinue raising interest rates by the end of this year and the economy will not slip into recession. If either of those assumptions proves false, then it will be difficult for Best Buy (and most other large retailers) to increase sales. But I see no reason to alter my outlook for the company based on its Q2 results and revised guidance.
Recommended Action: Buy BBY