VALUATION HIGHLIGHTS

1. Domestic Segment constitutes 91% of the Trefis price estimate for Best Buy's stock.

WHAT HAS CHANGED?

1. Best Buy Saw Mixed Q1 Results

The electronics retailer posted $1.15 (down 27% year-over-year) in adjusted EPS, exceeding the $1.10 consensus, and $9.47 billion in revenue (down 11% y-o-y), missing the analyst expectation by $60 million. Customers continued to deal with high inflation and low consumer confidence. The retailer saw a 10.1% decline in comparable sales from the prior year. The largest drivers of the comparable sales decline on a weighted basis were computing, appliances, home theater, and mobile phones. Those drivers were partially offset by growth in the gaming and services categories. Best Buy was forced to rely more on discounts and other promotions to drive sales, which weighed on its profitability. Its gross margin improved to 22.6%, up 70 basis points, but its operating margin fell to 3.4% from 4.6% in the prior-year quarter.

Note: Best Buy's FY'23 ended on January 28, 2023

2. FY 2024 Guidance

BBY expects full-year revenue in the range of $43.8 billion to $45.2 billion. Its enterprise comps growth is expected to decline in the range of 3% to 6%. Also, the company forecasts its operating income rate to range between 3.7% to 4.1% for the full year. Additionally, its non-GAAP diluted EPS is expected to come in the range of $5.70 to $6.50 compared to the consensus of $6.20.

In fiscal Q2, BBY expects its comparable sales to decline in the range of 6% to 8% and non-GAAP operating income rate to be approximately 3% or slightly higher.

3. Geek Squad Is A Strong Selling Point

Best Buy bought Geek Squad 20 years ago to provide a technical assistance service, with in-store, online, and 24-hour telephone and emergency online support for its customers. Moreover, customers can avail themselves of a wide range of services including smart home installation, appliance repairs, and wearable technology support. Best Buy also allows customers to come into stores to try out products before buying them. Over the years, the company has expanded its services to enable customers to use Geek Squad services for some products purchased at places other than Best Buy. Although the company does not report the exact revenue from Geek Squad, a report suggests that roughly 3% of the company's net sales were attributable to Geek Squad. This translates to more than $1 billion of sales for the company through this channel. In addition, the presence of consulting and installation services for devices that are difficult to configure or physically install also presumably drives traffic to Best Buy stores.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Best Buy's value that present opportunities for upside or downside to the current Trefis price estimate for Best Buy.

Stores in the U.S.

• Revenue Per Square Foot: Revenue per Square Foot for Best Buy U.S. grew from $1025 in fiscal 2020 to $1141 in fiscal 2023, driven by the growth in enterprise comparable sales and better-than-expected performance of new stores. However, the value was down 10% y-o-y in FY 2023, as consumer electronics felt the pressure of the broader macro environment. Going forward, we expect the figure to gradually increase in the long term before declining short term, as the company continues the expansion of its store-within-a-store format. There could be an upside of up to 5% to our price estimate if Best Buy manages to thwart competition and significantly improve this figure to $1293 by the end of the forecast period.


• Number of Stores: We estimate the number of Best Buy big-box stores in the U.S. to decline in the future. This figure is expected to decrease from 978 in FY 2023 to about 943 by the end of our forecast period. In case Best Buy decides to accelerate store closures and this figure reaches 910 by the end of the forecast period, there could be a downside of about 5% to our price estimate.

For additional details, select a driver above or select a division from the interactive Trefis split for Best Buy at the top of the page.


BUSINESS SUMMARY


Best Buy is the largest specialty retailer of consumer electronics in the U.S., selling a variety of brands of electronic devices such as TVs, home theater systems, cameras, appliances, computers, mobile phones, video games, software, and repair & installation services to consumers across the country under different store brands. It operates a click-and-mortar strategy, wherein it uses online channels as an effective way to boost store sales and allocates any sales made online, to its stores. Best Buy competes primarily with retailers such as Walmart, Amazon, Target, and Costco.


SOURCES OF VALUE


Best Buy US is the largest source of value for Best Buy for the following reasons:


Larger number of Best Buy US stores compared to international stores


Best Buy had 978 stores in FY 2023 in the U.S., whereas the number of international Best Buy stores stood around 160.


KEY TRENDS




Focusing on growing online sales

Best Buy is working hard to remain competitive in the online market. Technological revolution and increasing online penetration have revolutionized the consumer retail industry. Best Buy has been working toward growing its share of the e-commerce market.


Focus on technological innovation to stay competitive


Best Buy has also launched a third-party marketplace to offer online products from other sellers in exchange for a cut of the proceeds. Third-party sellers including Buy.com, Mambate, SF Planet, ANT Online, BeachAudio.com, and Wayfair have signed up for the platform.


Growing Smart TV market

The global smart TV market size was valued at $197.82 billion in 2022 and is expected to expand at a compound annual growth rate (CAGR) of 11.4% from 2023 to 2030. The increased popularity of content on over-the-top (OTT) services has provided a boost to the smart TV market. The full HD TV segment accounted for the largest market share in 2022, owing to the high-definition picture quality and a wide variety of content supporting it. Full HD TVs provide a resolution of 1920 x 1080 pixels, which has been the industry baseline for many years. This resolution is prevalent as large amounts of existing content support the resolution. The 8K TV segment is predicted to expand at the highest CAGR of around 17% during the forecast period of 2023 to 2030, owing to the demand for super high-resolution picture quality. 8K TVs provide detailed image resolution and support over 33 million pixels.


Growth in mobile computing challenges Best Buy's advantage

Mobile computing has grown rapidly in recent times driven by smartphone & tablet adoption. This has stimulated usage of the internet further and consumers can now research products they want to buy from anywhere. This empowerment is challenging the unique advantage that Best Buy has enjoyed till now, which is its trained staff that educates consumers about new products to make better purchase decisions. This trend has affected Best Buy's sales as consumers can potentially research products on the internet and buy them at a cheaper outlet of their choice.