By Craig Bowles
Best Buy Company, Inc. (NYSE:BBY) is slated to report Q2 2015 earnings before the bell on Tuesday, August 26th. The earnings release is expected at approximately 7:00 a.m. EST, followed by an 8:00 a.m. conference call available at Best Buy Investor Relations. The consumer electronics giant is widely seen as a key barometer on the health of the consumer and the economy. Its results, therefore, have a historical tendency to impact the broader market, including the CME index futures contracts and other broader market gauges.
Outliers & Strategy
- Adjusted or Non-GAAP Earnings Per Share: The Street's estimate is $0.31 (range $0.25 to $0.39) (Source: Yahoo Finance).
- Earnings Per Share: If an Adjusted EPS figure is not available, this value would compare with forecasts.
- Revenues: Analysts expect a decline of 3.3% y/y to $8.99 bln (range $8.76 bln to $9.16 bln).
- Comparable Store Sales: According to Zacks Investment Research, analysts are expecting -2.2%.
- Earnings Per Share Guidance for FY2015: Best Buy suspended guidance and stock buybacks in August 2012 while transitioning to a new CEO, but hasn't reinstated guidance so far. The current Street estimate is $2.28 (range $1.95 to $2.83).
- Best Buy insiders sold 1,811,247 shares over the last three months and 4,925,988 shares in the past year.
- Wal-Mart set a neutral-to-negative tone for retailers after reporting earnings in-line and beating on revenue, but lowering FY earnings guidance. Target (NYSE:TGT) lowered guidance, as well. (40% of S&P 500 retail has beaten estimates.)
- Price/Book of 2.3 and Price/Sales of 0.2 are in line with the 5-year average. Last quarter, the Dividend Yield was similar to the 5-year average at 2.6, but is now 2.3, so the company increased the dividend by 12%. Price/Cash Flow of 7.4 compares to a 5-year average of 2.8.
- Best Buy results could impact other consumer electronics retailers, such as Radio Shack (NYSE:RSH) and hhgregg (NYSE:HGG). Amazon (NASDAQ:AMZN) and Wal-Mart (NYSE:WMT) have a growing presence in this area, as well.
- Best Buy shares have a 1-day average price change on earnings of 6.65%. Options are pricing in an implied move of 7.59% off earnings.
- 08/14 Best Buy CEO Hubert Joly said tablets sales were "crashing" and the PC business was seeing a revival in sales, according to a post on Reuters.com.
- 07/24 Best Buy could gain on Radio Shack's eventual failure, as the company still generates $3 bln in sales annually, according to a post on Fool.com.
- 07/22 Best Buy showed a large bearish position taken in purchases of December puts and sales of December calls, according to a post on Optionmonster.com.
Best Buy regained 50% of the drop that took place at the first of the year, so time will tell if recent strength was just a normal bounceback reaction. Moving back below $29 would reaffirm the declining 200-day moving average and has limited support down to $23. So, the break-out of the current $29-$32 range potentially has more than just short-term implications. Long-term holders are probably wishing they had gotten out when highs were retested late last year, so may be acting as a drag on the recent bounce. (Chart courtesy of StockCharts.com)
Best Buy remains in a transition phase as it attempts to cut costs while expanding its private-label electronics business. Analysts aren't very optimistic on retail, with Wal-Mart and Target lowering guidance. The company normally handily beats estimates, so would probably need to at least hit the original analyst estimate of $0.34 for the quarter with revenue above analysts' consensus. Analysts expect same-store sales to decline, with the most optimistic seeing a 1.3% decrease. The stock has bounced around wildly for a number of years without a general trend, so long-term investors may be losing patience.
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Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.