What To Expect From Best Buy’s Q1 Earnings

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Best Buy (NYSE:BBY) is scheduled to announce its fiscal first quarter results on Thursday, May 25. The company reported mixed results in the fourth quarter, as its earnings beat market expectations but revenue missed. The retailer’s enterprise revenue declined 1% year-over-year (y-o-y) to $13.5 billion, primarily due to an enterprise comparable sales decline of 0.7%. This decline was driven by a lack of product availability as well as some weakness in gaming, tablets, wearables and mobile phone sales in the quarter. However, the retailer reported higher-than-expected non-GAAP EPS of $1.95, up 27% compared to $1.53 in the prior year. According to management, this strong bottom line performance was driven by a disciplined promotional strategy, optimization of merchandise margins, expense management, and a lower effective tax rate.

On the e-commerce front, Best Buy is investing to increase its online presence in the U.S. e-commerce market. The company aims to garner a greater share of total U.S. online sales, which are expected to reach $523 billion by 2020. In Q4 2016, the company managed to grow its domestic online revenue to 18.6% of total domestic revenue in the quarter, versus 15.6% in the prior year. Additionally, its domestic online revenue increased by 17.5% on a comparable basis, primarily due to increased traffic and higher conversion rates. For the full year 2016, the company’s online sales grew 21% y-o-y.

Going forward, Best Buy plans to focus on expanding its brand’s online and multi-channel business, accelerating growth opportunities in Canada and Mexico, and investing in people and systems. Consequently, we expect Best Buy’s continuous promotional strategies and declining store traffic to negatively impact the company’s bottom line in the first quarter.

Q1 Guidance

For the first quarter, Best Buy expects its sales to see declines from a lack of product availability. As a result, the company expects its total revenue to be in the range of $8.2-$8.3 billion in the first quarter. It also expects domestic comparable sales growth in the range of -1.5% to -2.5%, and adjusted earnings per diluted share of $0.35 to $0.40 for the company. Reuters’ compiled analyst estimates forecast earnings of $0.40 per share and revenue of $8.27 billion for Q1.

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