Big bump for Best Buy
The retailer’s stock posts its biggest one-day gain in a decade.
MINNEAPOLIS — Talk about rising above low expectations.
Best Buy Co.’s shares soared 20 percent on Tuesday — its biggest one-day gain in more than a decade — after reporting a surprising uptick in quarterly comparable sales when investors were expecting a slight drop.
“Best Buy continues to defy the skeptics,” David Magee, an analyst with SunTrust Robinson Humphrey, wrote in a research report.
Wall Street predicted negative results out of the electronics chain based on multiple troubling signs about a downward trend in consumer electronics over the summer, said R.J. Hottovy, an analyst with Morningstar. “Against that backdrop, it’s not surprising that even modestly positive results are driving the stock upward.”
The red flags included Target Corp.’s bombshell last week its electronic sales were down doubledigit percentages in the second-quarter — and sales of Apple products in particular were down more than 20 percent. Wal-Mart executives also talked about softness in that segment. And recent data from the U.S. Commerce Department told a similar tale about a slide in electronics and appliance store sales.
On top of that, investors had become increasingly skeptical about Best Buy’s turnaround since Chief Financial Officer Sharon McCollam — a major player in cost-cutting efforts that got the company back on stable footing — announced in May that she would step down. They were also unsettled by Chief Executive Hubert Joly’s sell-off earlier this summer of $12.8 million of shares he owns in the company.
Add all of that up, and in the day leading up to Tuesday’s earnings release, headlines in the financial press warned of “mounting troubles” for Best Buy and a possible imminent “crash” of its shares.
So when Best Buy, headquartered in suburban Minneapolis, posted a comparable sales growth in the U.S. of 0.8 percent, investors celebrated. The retailer, which had forecast flat sales in the May-to-July period, also posted a better-than-expected 21 percent increase in profit.
“You have to give the company a lot of credit for very good execution and what seems to us as clear market share gains,” said Peter Keith, an analyst with Piper Jaffray. “They are executing very well in a tough environment.”
Still, his firm is maintaining its neutral rating because of the overall tepid consumer electronics industry. Keith added that there continue to be concerns about the price deflation of 4K TVs and about how much of a lift Best Buy could get out a new iPhone model, which is expected to be released this fall.
Because of the industrywide decline in smartphone sales, Best Buy is sticking with its forecast for flat sales this year. But it has also lifted its profit outlook.
Best Buy attributed the better second-quarter performance to strong sales of TVs, appliances, computing and health and wearables that helped offset weakness in smartphones and video games. Also, tablet sales, which have been declining industrywide, did not perform as badly as expected.
Joly said it was also a reflection that the company’s strategy of turning its stores into destinations with mini-shops highlighting major vendors, focusing on customer service and upgrading its digital channels is paying off.
Best Buy’s online sales were another standout, rising 24 percent in the quarter compared to 17 percent a year ago. Best Buy has been upgrading its website and app to improve search capability, provide summaries of customer reviews and streamline the checkout process.