Best Buy Co., Inc. BBY posted strong results for the first quarter of fiscal 2022, with both upper and lower results increasing year on year and exceeding Zacks’ consensus estimate.
The quarter benefited from sales growth in the domestic and international segments. Online sales remained strong in the domestic channel. Management noted that demand for technology products and services was high during the quarter under review. This in turn was fueled by a continued focus on home in the midst of the pandemic. In addition, the results were supported by government stimulus programs and a strong housing environment. Additionally, the company’s Blue Shirts and Geek Squad agents delivered impressive performances.
Management has raised its comparable sales outlook for fiscal 2022 while providing its perspective for the second quarter. Going forward, this Zacks Rank # 3 (hold) company expects to continue to gain from increased consumer reliance on technology.
Shares of the Richfield, Minnesota-based company were up during the trading hours leading up to market launch on May 27. Shares of the company have risen 15% in the past three months, compared to a 30.2% gain in the sector.
First Quarter Details
Best Buy posted adjusted earnings of $ 2.23 per share, which in line exceeded Zacks’ consensus estimate of $ 1.45. In addition, net income increased significantly from profit of 67 cents reported in the last year’s quarter.
Business revenues increased 35.9% year-over-year to $ 11,637 million and topped Zacks’ consensus estimate of $ 10,568 million. Comparable business sales increased 37.2% compared to a 5.3% decline in the prior year quarter. In addition, revenues increased in the domestic and international segments.
We note that the adjusted gross margin increased 37.7% to $ 2,709 million. In addition, the adjusted gross margin increased by 30 basis points (bps) to 23.3%. Adjusted operating income was $ 741 million, up from $ 250 million in the last year quarter. Again, adjusted operating margin increased 350 basis points to 6.4%.
Domestic segment revenues increased 37% to $ 10,841 million. This year-over-year growth is primarily attributable to a comparable increase in sales of 37.9%, partially offset by the loss of revenue from permanent store closings over the past year. The company recorded comparable sales growth in most of its categories, with the main drivers being IT, home theaters and home appliances.
Meanwhile, the segment’s comparable online sales increased 7.6% to $ 3.6 billion, driven by higher average order values and traffic. As a percentage of overall national revenue, online revenue contributed 33.2% compared to 42.2% last year.
We note that the segment’s gross margin increased 30 basis points year-over-year to 23.3% due to better margin rates on products, including reduced promotions and effect. of rate leverage on supply chain costs. The benefits were partly offset by higher installation and delivery costs.
Moving on to the international segment, revenue increased 23% to $ 796 million. This increase was supported by comparable sales growth of 27.8% and favorable exchange rate gains of around 1,000 basis points. Segment gross margin increased 140 basis points to 23.7%, driven by improved product margin rates.
Best Buy Co., Inc. Price, Consensus, and Surprise EPS
Best Buy Co., Inc. graph-price-consensus-eps-surprise | Quote from Best Buy Co., Inc.
Best Buy ended the quarter with cash and cash equivalents of $ 4,278 million, long-term debt of $ 1,229 million and total equity of $ 4,158 million.
During the quarter, the company returned a total of $ 1.1 billion to shareholders in the form of share buybacks of $ 927 million and dividends valued at $ 175 million. In addition, the company has authorized a quarterly cash dividend of 70 cents per share, payable on July 8, 2021 to shareholders of record on June 17, 2021.
For fiscal 2022, the company expects share buybacks of approximately $ 2.5 billion. Capital expenditures are expected to be between $ 750 million and $ 850 million.
Management stressed that the year started stronger than initially expected and that the growth momentum should also continue in the second quarter. As a result, the company has raised its comparable view on sales growth for the year.
That being said, for fiscal 2022, management expects comparable company sales to increase in the order of 3-6%. The company had previously projected comparable sales of between 2% decline and 1% growth. In addition, the adjusted gross margin is expected to remain stable with the fiscal year 2021 rate of 22.4%.
For the second quarter of fiscal 2022, the company expects same-store sales growth of nearly 17%. In addition, the adjusted gross margin should remain stable at a rate of 22.9% in the second quarter of fiscal 2021.
The company expects the buying behavior of consumers to undergo changes in the second half of the year as they spend more time on activities such as outdoor dining and travel. As the impact of these aspects is difficult to predict, the company made no changes to its sales assumptions for the second half of the year for the year.
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