Consumer Belt-Tightening and Operating Deleverage Pinch Best Buy's Results; Shares Still Cheap

Narrow-moat Best Buy reported soft quarterly results, with comparable store sales down nearly 13% in the U.S. and with an operating margin of 3.6% falling sharply (310 basis points) from the year-ago period on heavy markdowns and industry promotional activity. While our forecast was largely in line with reported results (due to interim guidance), the combination of headcount reductions and tepid guidance with respect to the TotalTech loyalty program and nascent Best Buy Health business leave us with near-term concerns, underpinning what we expect to be about a high-single-digit cut to our $114 fair value estimate.