3 Reasons Why Best Buy's Stock Is Getting Crushed
Best Buy (BBY) - Get Report may be emphasizing that it beat Wall Street's third quarter earnings estimates, but investors have opted to focus on the negatives instead and are dumping the stock.
On Thursday, the electronics retailer reported adjusted earnings of 41 cents a share, surpassing forecasts of 35 cents a share. Total revenue came in at $8.82 billion, slightly below estimates of $8.83 billion, with sales gains achieved in the computing, appliance, health and wearable devices and large screen television categories.
Appliance sales, which have been hot all year for Best Buy as people continue to invest in their homes, rose an impressive 16.4%. But categories such as tablets, mobile phones and digital imaging fared less well, as did demand for things like Geek Squad services.
Shares of Best Buy plunged almost 9% in pre-market trading Thursday.
TheStreet takes a brief look at what may have spooked investors.
1. U.S. same-store sales growth badly missed estimates.
Best Buy's U.S. same-store sales rose 0.8% in the quarter, falling well short of Bloomberg estimates for a 1.4% increase, despite the company investing heavily this year in employee training and more competitive prices. The result, at least initially, raises fears of how the company will fare during the ultra competitive holiday season, since it will have to sell more than just pricey appliances to achieve its overall sales guidance.
2. International results were very disappointing.
Sales for Best Buy's international division plunged 29.4% year over year, weighed down by the impact of lost revenue due to store closures and the impact of the strong dollar. The international business produced a non-GAAP operating loss of $8 million, bringing year-to-date losses to $56 million. Best Buy acknowledged that "ongoing softness in the Canadian economy and consumer electronics industry" continue to hamper performance.
The company has about 192 stores in Canada and 23 in Mexico.
3. Best Buy's outlook for the holidays is cautious.
For the fourth quarter, Best Buy estimated a low-single digit percentage revenue decline, and a decline in operating profit margins of from 25 to 45 basis points. Wall Street was looking for a revenue decline of about 2.2% compared to the prior year. Best Buy noted that a continued pressured backdrop for electronics sales "adds a level of caution to our outlook."