Best Buy (NYSE: BBY), a specialty retailer of consumer electronics, is scheduled to report its fiscal second-quarter results on Tuesday, August 24. We expect the retailer’s stock to likely trade higher post Q2 with both revenues and earnings beating expectations. Best Buy benefited from people transitioning to working from home during the pandemic with the growth in sales of products such as batteries, PCs, laptops, LCDs, printers, and refrigerators. Consequently, the retailer was able to drive consumers to purchase electronics online without losing customers to Amazon
Our forecast indicates that Best Buy’s valuation is $118 a share, which is 8% higher than the current market price. Look at our interactive dashboard analysis on Best Buy’s Pre-Earnings: What To Expect in Q2? for more details.
(1) Revenues expected to be marginally ahead of consensus estimates
Trefis estimates Best Buy’s Q2 2022 revenues to be around $11.6 Bil, slightly higher than the consensus estimate. In Q1, the retailer’s revenue of $11.6 billion topped the consensus by 11% and grew 37% year-over-year (y-o-y). While this selling period compared to a depressing prior-year period that included some of the most intense retailing lockdowns of the pandemic, the recent Q1 results also smashed results from the same period in 2019, which saw sales grow to $9.1 billion. The company said it had sales growth across almost all categories, with the largest gains in home theater, computing, and appliances. We expect this growth momentum into the second quarter, as well.
Looking ahead, we also believe that the servicing of electronics will grow, setting up Best Buy’s Geek Squad services for more business down the road. For the full year, Best Buy expects same-store sales to grow 3% to 6% this year. It had previously stated that they would range from a decline of 2% to a growth of 1%.
2) EPS likely to beat consensus estimates
Best Buy’s Q2 2022 earnings per share are expected to be $1.90 per Trefis analysis, 3% higher than the consensus estimate of $1.85. In Q1, the company’s EPS of $2.23 delivered an approximate 60% surprise above analyst average forecasts of $1.39. The company saw a modest gross profit margin uptick y-o-y as it relied less on promotions in Q1. However, this gain was partially offset by rising costs in areas like fulfillment and labor.
For the full year, we expect Best Buy’s adjusted net margin to decline slightly from 4.4% in fiscal 2021 to 4.2% in fiscal 2022. This coupled with a 4% y-o-y decline (due to a strong comparison to the second half of FY 2021) in Best Buy’s revenues, could lead to a fall of $200 million y-o-y in adjusted net income to $1.9 billion in FY 2022.
(3) Stock price estimate higher than the current market price
Going by our Best Buy’s Valuation, with an EPS estimate of around $7.38 and P/E multiple of 16.0x in fiscal 2021, this translates into a price of around $118, which is 8% higher than the current market price of roughly $110.
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