Company Reports

We believe Best Buy is taking adequate steps to shore up its competitive position in an intensely competitive consumer electronics space. Moving forward, the firm plans to prioritize its digital platforms, continue to reimagine its in-store experience, and invest in incremental revenue streams.

Narrow-moat Best Buy reported OK fiscal 2025 first-quarter results, with $1.20 in adjusted earnings per share edging our $1.04 estimate despite $8.85 billion in sales missing our $8.96 billion estimate. While the firm is executing ably from a strategic and operations perspective by investing in store renovations, leaning into core competencies with specialized labor and services touch points, and working to reduce operating costs, it remains saddled by a challenging macroenvironment and broader consumer pressure. This was best seen in the appliances segment, where comparable-store sales fell 18.5% despite a weak comparison with the year-ago period, attributable to high interest rates, broader consumer malaise, and an uptick in category promotional activity industrywide. While we expect improvement over the balance of the year in the consumer electronics category, driven by laptops in particular, our relatively dour outlook for personal consumption spending over the next few quarters suggests that the firm will not see a return to meaningful comparable-store sales growth until 2026.

We believe Best Buy is taking adequate steps to shore up its competitive position in an intensely competitive consumer electronics space. Moving forward, the firm plans to prioritize its digital platforms, continue to reimagine its in-store experiance, and to invest in incremental revenue streams.

Narrow-moat Best Buy is taking steps to defend its share in core consumer electronics categories but continues to limp through a challenging macroeconomic environment that has applied strong downward pressure to its sales and profits. While it's encouraging to hear that the firm expects top-line growth by the second half of 2024, excluding calendar 2023's extra week, its full-year outlook for $42 billion in sales at the midpoint falls about 4% behind our prior forecast, leading us to take in our $92 fair value estimate by an expected low-single-digit percentage.

We believe Best Buy is taking adequate steps to shore up its competitive position in an intensely competitive consumer electronics space. As the preeminent offline consumer electronics retailer in the U.S., the firm has invested heavily in seamless omnichannel access, building out a three-tiered loyalty program, and cutting out nonessential costs.

Narrow-moat Best Buy posted another challenging quarter of results, missing our top- and bottom-line estimates and pulling down guidance for the important holiday season as spending remains soft in the consumer electronics category. After digesting results, we plan to lower our $95 fair value estimate by a low-single-digit percentage, and we continue to view a recovery in category demand in the second half of 2024 as our base case scenario. Shares look cheap, trading at nearly a 30% discount to our revised valuation.

We believe Best Buy is taking adequate steps to shore up its competitive position in an intensely competitive consumer electronics space. As the preeminent offline consumer electronics retailer in the U.S., the firm has invested heavily in seamless omnichannel access, building relationships with its 40 million active loyalty members, and cutting out nonessential costs.

While narrow-moat Best Buy posted solid second-quarter results, a murky near-term industry environment will likely lead us to trim our $100 fair value estimate by a mid-single-digit percentage. More concretely, we now pencil in just 1.1% and 2.2% 10-year cumulative annual growth rates in revenue and operating income, respectively, down from 1.3% and 3.3%—as we expect sluggish industry sales, normalizing co-branded credit card profitability, and commensurate challenges generating operating leverage to limit long-term operating profit upside. Shares continue to look attractive.

We believe Best Buy is taking adequate steps to shore up its competitive position in an intensely competitive consumer electronics space. As the preeminent offline consumer electronics retailer in the U.S., the firm has invested heavily in seamless omnichannel access, building relationships with its 40 million active loyalty members (unpaid and TotalTech, which are set to be transformed into a three-tiered program effective June 2023), and cutting out nonessential costs.

Narrow-moat Best Buy's fiscal 2024 first-quarter results aligned closely with our expectations, giving us little reason to change our $99 fair value estimate beyond a small bump for time value, particularly as management maintained its full-year guidance. While the shares ticked slightly higher after the release, they continue to trade at about a 30% discount to our fair value estimate, providing investors with an attractive entry point, particularly with a dividend yield approaching 5.5% at current market prices.

We believe Best Buy is taking adequate steps to shore up its competitive position in an intensely competitive consumer electronics space. As the preeminent offline consumer electronics retailer in the U.S., the firm has invested heavily in seamless omnichannel access, building relationships with its 40 million active loyalty members (unpaid and TotalTech), and cutting out nonessential costs.

Narrow-moat Best Buy's guidance suggests another year of sales declines, setting the stage for a more protracted route to recovery than we'd initially contemplated. While we believe that the firm's strategic priorities—investing behind its omnichannel, building customer relationships through its TotalTech loyalty program, and incubating its nascent Best Buy health business—are cogent, we expect to lower our $105 fair value estimate by a high-single-digit percentage on softer fiscal 2024 sales and the operating deleverage that follows. Shares continue to trade at about a 15% discount to our revised intrinsic valuation.

We believe Best Buy is taking adequate steps to shore up its competitive position in an intensely competitive consumer electronics space. As the industry emerges from the shadow of the coronavirus, it has become clear that how people shop has permanently changed—with customers demanding seamless omnichannel access to favorite brands, quick fulfillment, and tech solutions to more problems than ever before. As a result, Best Buy's strategic positioning continues to resonate, with the firm leveraging its store footprint for fulfillment and post-sale services, emphasizing its differentiated service offering, and experimenting with newer store formats, as the "one size fits all" retail model across trade areas appears antiquated. The firm's digital sales volume more than doubled during the pandemic, and with 31% of sales derived from that channel through three quarters of calendar 2022 we expect the shift to stick, even as some spending returns to on-premises occasions.

Narrow-moat Best Buy reported strong third-quarter results, with sales of $10.6 billion and EPS of $1.22 edging our $10.2 billion and $1.20 EPS estimates. Notably, management maintained guidance for its critical holiday fourth quarter but lifted its full-year targets consistent with quarterly outperformance. While we intend to modestly lower our long-term operating margin assumptions—consistent with deleverage relative to investor day guidance and slower than foreseen traction in the firm's loyalty offering—the impact should be offset by time value and strong quarterly results, resulting in minimal net impact to our $105 fair value estimate.

We believe Best Buy is taking adequate steps to shore up its competitive position in an intensely competitive consumer electronics space. As the industry emerges from the shadow of the coronavirus (and steps into the quagmire of elevated inflation and softening consumer spending), it has become clear that how people shop has permanently changed—with customers demanding seamless omnichannel access to favorite brands, quick fulfillment across channels, and tech solutions to more problems than ever before. As a result, Best Buy's strategic positioning continues to resonate, with the firm leveraging its physical footprint for fulfillment and post-sale services, emphasizing its differentiated service offering, and experimenting with newer store formats, as the "one size fits all" retail model across trade areas appears antiquated.

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.

We believe Best Buy is taking adequate steps to shore up its competitive position in an intensely competitive consumer electronics space. As the industry emerges from the shadow of the coronavirus (and steps into the quagmire of elevated inflation and softening consumer spending), it has become clear that how people shop has permanently changed--with customers demanding seamless omnichannel access to favorite brands, quick fulfillment across channels, and tech solutions to more problems than ever before. As a result, Best Buy's strategic positioning continues to resonate, with the firm leveraging its physical footprint for fulfillment and post-sale services, emphasizing its differentiated service offering, and experimenting with newer store formats, as the "one size fits all" retail model across trade areas appears antiquated.

We plan to trim our $126 fair value estimate for narrow-moat Best Buy by a high-single-digit percentage as we adjust for soft interim guidance, with an expected 13% contraction in domestic quarterly comparable store sales and 3.5%-4% quarterly operating margin falling meaningfully behind our forecasts for an 8% decline and 4.4% margin, respectively. The steep correction comes amid a quickly deteriorating backdrop in which retailers have leaned heavily on discounting to correct for over-ordering, working to right-size their product assortments in time for the critical holiday season. Best Buy is acutely sensitive to deteriorating consumer demand, with consumer electronics and appliances historically representing two of the first places consumers look to pull back on spending. These changes pencil out to a 35%-40% decline in adjusted EPS in calendar 2022, by our calculations, and we expect pressure to persist into the following year. Nevertheless, shares look cheap, trading at about a 35% discount to our revised valuation.

We believe Best Buy is taking adequate steps to shore up its competitive position in an intensely competitive consumer electronics space. As the industry emerges from the shadow of COVID-19, it’s become clear that how people shop has permanently changed--with customers demanding seamless omnichannel access to favorite brands, quick fulfillment across channels, and tech solutions to more problems than ever before. As a result, Best Buy's strategic positioning continues to resonate, with the firm leveraging its physical footprint for fulfillment and post-sale services, emphasizing its differentiated service offering, and experimenting with newer store formats, as the "one size fits all" retail model across trade areas appears antiquated.

Narrow-moat Best Buy reported slightly soft results, with sales of $10.65 billion and EPS of $1.49 narrowly missing our $11.1 billion and $1.60 estimates, respectively. The firm saw 140 basis points of gross margin pressure from a year ago (to 21.9%, from 23.3%) from investments in its Totaltech loyalty program (100 basis points), elevated promotional activity, and higher-than-expected freight and component costs. While management lowered its sales and EPS forecasts for the balance of the year (down 2.2% and 3.3%, respectively, at the midpoints), we're encouraged by the relative resilience of the consumer electronics retailer amid a backdrop of higher fuel and food costs, weaker consumer sentiment, and general trepidation across the consumer cyclical space. We continue to believe that the firm's Totaltech and Health Investments figure to unlock mid-single-digit average annual sales growth in fiscal 2024 and 2025, while the higher-margin health segment, an elevated digital mix, and growing advertising business render the firm's 6.2%-6.8% non-GAAP operating margin target readily attainable, a view that the market seems to be discounting. Shares have fallen some 35% over the past six months, well below even their January 2020 (prepandemic) levels, and look materially undervalued, trading at a 40%-45% discount to our $126 fair value estimate—which we don't expect to meaningfully change after digesting results.