Best Buy’s quarter two earnings report, released Tuesday, shattered analyst expectations, Bloomberg reports. But, the company’s stock has plummeted on CEO Hubert Joly’s warning that the sales growth may not be sustainable.
Joly cautioned on the earnings call, per Bloomberg, that investors should not expect comparable sales growth to continue at its second-quarter rate.
As of 12 pm ET Tuesday, Best Buy shares are down 11 percent since the market closed Monday.
For quarter two, the company reported comparable sales growth of 5.4 percent, more than twice analysts’ expectations of 2.1 percent. Quarter two marks the chain’s best comparable sales growth since quarter four of fiscal 2010, Bloomberg reports.
Non-GAAP diluted earnings per share jumped from $0.57 to $0.69 year over year, an increase of more than 21 percent. Sales revenue rose almost five percent year-over-year, from $8.53 billion to $8.94 billion, and came in 3.2 percent above analysts’ expectations of $8.66 billion.
Despite Joly’s warning, Best Buy has revised its full-year comparable sales growth target from 4.5 percent to 5.5 pecent and raised Non-GAAP diluted EPS targets to $0.80/share from $0.75/share (an increase of more than 6.5 percent).
CFO Corie Barry expects “continued positive industry and consumer momentum,” she said in a statement, per Bloomberg, adding that product launches throughout the fall and the holiday season should have a positive impact on Best Buy’s performance.
Still, Barry offers a word of caution regarding the future—particularly the holiday boom, during which discounts and other promotions, Bloomberg points out, cut into the bottom line.
“You can’t always carry trends forward into the fourth quarter,” she said on the call, per Bloomberg. “…there are still a lot of unknowns.”
Best Buy’s success this summer comes as a number of hot new tech products hit the shelves. Nintendo’s new gaming platform, the Switch, and Samsung’s new phone, the Note 8, presumably played a role in boosting Best Buy’s sales numbers, Bloomberg notes.
Sales of smart home devices like the Google Home and Amazon’s Alexa increased as well, as Best Buy made an effort to showcase such devices. Sales of “wearables” like the Apple Watch also climbed.
According to the earnings report, though, pricing pressure in the mobile phone market drove down margins on products like the Note 8, and wearables are inherently low-margin products. A decline in sales of tablets, which are high-margin items, further limited profits.
Still, gross profit increased 4.4 percent, from $2.06 billion to $2.15 billion, while gross profit percentage (i.e. the percentage of revenue that becomes profit) remained flat.
Best Buy’s online revenue increased 31.2 percent “on a comparable basis,” according to the earnings release, while online sales accounted for 13.2 percent of total domestic revenue, an increase from 10.6 percent a year ago.
The company’s online revenue was higher than it has ever been, except during a holiday quarter, Bloomberg reports.
Still, experts doubt whether Best Buy can continue to compete with Amazon, which, according to a consumer survey by Gordon Haskett analyst Chuck Grom (cited by Bloomberg), now controls more than half of online sales across 11 key categories, including electronics and small appliances.
“They are going to get perfect quarters like this every now and again,” Brandon Fletcher, an analyst at Sanford C. Bernstein & Co., said of Best Buy, per Bloomberg.
The company “will continue to face waves of growth and decline,” Fletcher added, “but its base products — printer ink, headphones, etc. — are not related to product launches and those sales are inexorably moving to Amazon and Wal-Mart online.”
Best Buy has succeeded in the stock market despite increasing pressure on the eCommerce front. At Monday’s close, shares had increased more than 60 percent in the past year.
But the company’s own management has asked investors to temper their enthusiasm, and investors are obliging.
Featured Image via Wikimedia Commons