Best Buy Soars on Strong Holiday Sales and Outlook for 2019

(Bloomberg) -- Best Buy Co. jumped after the gadget retailer lent a spark to what had been a gloomy earnings season by delivering holiday sales that outpaced projections and a full-year profit outlook that topped analysts’ estimates.

Comparable-store sales in the U.S. -- the retailer’s most-watched metric -- rose 3 percent in the fourth quarter, beating projections. The midpoint of its profit forecast for the current fiscal year also topped estimates, sending the shares up as much as 16 percent.

Best Buy went all out to capture holiday shoppers, rolling out Black Friday deals early and even adding more toys to its shelves to grab dollars that once went to Toys “R” Us. The nation’s biggest electronics retailer also offered free shipping on online orders, with no minimum purchase -- a strategy mirrored by fellow Minneapolis retailer Target Corp. The move helped Best Buy’s e-commerce revenue gain 9.3 percent.

Best Buy Soars on Strong Holiday Sales and Outlook for 2019

“There are a lot of positives here, both in the fourth quarter and looking forward,” said Moody’s analyst Charlie O’Shea. Best Buy’s stores and online unit posted “impressive performance,” he said.

Gross margins were in line with estimates, soothing investors who had shown concern about Best Buy’s profitability as its invests heavily on services to keep pace with Inc. Best Buy is building out fresh offerings like an army of hundreds of traveling sales advisers who make house calls, and a beefed-up tech support program that will assist customers with any device, no matter where they bought it.

On a conference call with analysts Wednesday, Best Buy said it has enlisted more than 1 million members for its “Total Tech Support” service, while in-home sales advisers handled 175,000 consultations last year.

What Bloomberg Intelligence Says

“Best Buy’s strong holiday performance, particularly while maintaining its focus on profitable growth, and above-consensus fiscal 2020 earnings guidance give us greater confidence in the retailer’s ability to meet the financial targets of its services-focused strategy. This aims to create deeper customer engagement and provide an advantage and competitive moat against digital rivals.”
--Seema Shah, North American retail analyst
Click here to view the research.

The shares climbed as high as $69.85 in New York Wednesday, the biggest intraday gain since May 2017. The shares had already been up 14 percent this year through Tuesday’s close, outpacing the S&P 500 Index.

‘Smart’ Devices

Best Buy’s push into services and its increasing assortment of smart-home devices -- which are now in one out of four U.S. households with broadband Internet, according to researcher Parks Associates -- have helped sustain the turnaround plan that Chief Executive Officer Hubert Joly began six years ago. Networked devices like door locks and cameras were among the best-selling items for Best Buy over the holidays, along with appliances, video games and wearable devices like activity trackers.

Best Buy Soars on Strong Holiday Sales and Outlook for 2019

Best Buy also said profit in the current fiscal quarter would be between 83 cents and 88 cents a share, exceeding analysts’ estimates.

Still, things could get tougher from here. Retailers of all stripes are bracing for a more difficult environment as many of the headwinds they enjoyed last year start to dissipate. This week, Home Depot Inc. said sales growth will cool off this year, while Macy’s Inc. unveiled a fresh round of cost cuts amid slowing growth.

Revenue growth in the consumer-electronics category will dip slightly in 2019, according to data tracker NPD.

“We do not believe the technology outlook is good,” said Neil Saunders, an analyst at GlobalData Retail. “Against this backdrop, Best Buy needs to pull out all the stops to secure the little growth that is generated, as well as pivoting to parts of the market that offer better prospects.”

©2019 Bloomberg L.P.