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- Best Buy far exceeded its estimate of second-quarter earnings.
- The stock fell. Higher rates hurt prospects.
Best Buy (BBY) shares fell by more than 9% this morning, despite estimates widely denied by analysts analysts. The company has raised its outlook for tax benefits. However, Best Buy's lower-than-expected comparable sales outlook has irritated investors.
The higher prices prompted Best Buy to reduce its growth prospects for comparable sales. Today, Best Buy expects its compositions to increase from 0.7% to 1.7%. Previously, the company expected its workforce to increase from 0.5% to 2.5%. According to Reuters, analysts were expecting a 2% increase in Best Buy's compensation in fiscal year 2020.
Best Buy is likely to suffer the consequences of higher tariffs on electronic products, which will come into effect on December 15. In addition to the disappointing outlook, Best Buy missed analysts' sales estimates in the second quarter. The company's growth was also below analysts' expectations, which displeased investors.
Best Buy earnings in the second quarter
Best Buy revenue was $ 9.54 billion, up 1.7% year-over-year. Comparable sales were up 1.6% from the 6.2% growth recorded in the second quarter of last year. Overall, the growth of the company is encouraging. However, the company's revenues and results exceeded analysts' expectations.
Analysts expect Best Buy to report revenue of $ 9.56 billion. At the same time, analysts were expecting a 2.1% increase in the company's revenue in the second quarter.
Best Buy domestic revenues increased 2.1% to $ 8.82 billion, driven by a 1.9% increase in sales and benefits from the acquisition of GreatCall. The industry's gross margin improved by 20 basis points to 24%, driven by acquisitions. However, rising supply chain costs remained a drag.
The company's international revenues declined 3.4%, reflecting a 1.9% decline in currency mix and volatility. The industry gross margin rate improved 70 basis points to 23.8%.
Improved sales and gross margin expansion drove Best Buy results in the second quarter. Adjusted effective tax rates and lower share repurchases boosted earnings per share. Best Buy posted adjusted profit of 1.08 USD, up 18.7% year-on-year. In addition, adjusted EPS was well above analysts' expectations, at $ 0.99.
Perspective
The company forecasts revenues of $ 43.1 billion, or $ 43.6 billion in 2020. Previously, revenues were to reach $ 42.9 billion, or $ 43.9 billion. Now adjusted EPS will likely be between $ 5.60 and $ 5.75. Previously, the forecast was between $ 5.45 and $ 5.65.
While Best Buy has improved its earnings outlook, difficulties with rising prices are likely to weigh on the stock. Notably, the title has been hugely successful following the decision of President Trump tweet On August 1, President Trump announced a 10% tariff on $ 300 billion worth of Chinese goods. Rates will come into effect on September 1 st. Some tariffs on mobile phones and laptops have been postponed until December 15th. After China's new tariff series, President Trump raised the rates from 10% to 15% August 23rd.
In addition to customs duties, Best Buy faces significant competitive hurdles in the domestic market. Walmart and Target have rapidly expanded their delivery capabilities. Amazon has also been a major threat.
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