Key Takeaways From Best Buy’s Q3 Earnings

Best Buy (NYSE:BBY) announced stronger than expected third quarter results on Thursday, with both its revenue and earnings beating market expectations. The company reported revenue of $8.9 billion, which beat consensus estimates by $100 million. These results were due to company’s strong performance in both of its domestic and international segments.

An increase in gross profit margins in both the company’s segments along with lower than expected selling and general administrative (SG&A) expenses in Best Buy’s domestic business helped the company post adjusted earnings of $0.62 per share for the third quarter, up by more than 50% over the last year. The company’s stock soared to a 52 week high after the earnings announcement.

Strong Performance By Domestic and International Segments

In its domestic business, Best Buy’s revenue increased 1.3% y-o-y to $8.2 billion, primarily driven by comparable sales growth of 1.8%, which was partially offset by the loss of revenue from 14 large formats and 23 Best Buy mobile store closures. From an overall merchandising perspective, segments such as home theater, mobile, wearables and connected home grew year-over-year, whereas the gaming segment witnessed softness. Best Buy also continued its growth momentum in digital sales, as it delivered a third straight quarter of revenue growth ( 24.1%). In the international business, the company’s revenue grew 3.3% y-o-y on a reported basis, driven by strong results in both Canada and Mexico. ((Best Buy’s (BBY) CEO Hubert Joly on Q3 2017 Results – Earnings Call Transcript, Seeking Alpha, Nov 17 2016))

Best Buy’s domestic gross profit margin increased 60 basis points (bps) due to improved margins in the computing and home theater categories, which were partially offset by the mobile category. On the other hand, the company’s international gross margin increased 180 bps to 24.3%, driven by a higher y-o-y gross margin in Canada due to a more favorable product mix and corresponding increased promotional activity last year related to the brand consolidation.

Q4 Guidance

For the fourth quarter, Best Buy expects total revenue to be in the range of $13.4-$13.6 billion. It also expects its domestic comparable sales growth in the range of -1% to 1% and international comparable sales growth in the range of -2% to 2%, which in turn would translate to adjusted earnings per diluted share of $1.62 to $1.67 for the company. Reuters’ compiled analyst estimates forecast earnings of $1.58 per share for Q4 FY 2017.

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