Shares of Best Buy (BBY) are up 31% year to date and 15.6% just this quarter. Investors seem to have already anticipated a strong holiday season. But the questions is whether Best Buy can match its huge performance. The electronics retailer reports third-quarter results on Thursday.
At the end of August, Best Buy posted better-than-expected results, which lit a fire under the shares. Its second-quarter earnings were 57 cents per share, 14 cents better than the consensus of 43 cents. Revenue rose a microscopic 0.1% to $8.53 billion, vs. the $8.39 billion estimate.
The better-than-expected earnings came almost entirely from a lower tax rate, which fell from 37% to 34.6%.
Same-stores sales were up 0.8% vs. flat guidance. Last year, same-store sales were up 3.8%.
Gross margins fell 28 basis points to 24.17%, while operating income was flat at 3.43%.
U.S. online revenue surged 23.7% to $835 million due to higher traffic, higher average order amounts and better customer conversion. As a percentage of domestic revenue, e-commerce is now 10.6%, up 200 basis points.
The company closed 12 large-format and 22 Best Buy Mobile stores during the quarter. On a constant currency basis, international revenue rose 4.1%.
Best Buy reports third-quarter results on Thursday. Analysts are expecting just 0.4% growth. But Best Buy could benefit from better demand for mobile phones and televisions as new models hit the sales floor this quarter.
Management said earnings this quarter should fall into a range between 43 cents and 47 cents per share, vs. estimates of 45 cents. Revenue is expected to be in the range of $8.8 billion to $8.9 billion. Same-store sales are expected to be up 1%.
With the stock up so much, investors are banking on a strong second half. The fourth quarter represents about 55% of total sales so, with the stock up 36% year to date, it seems investors have already anticipated a solid holiday season.
I would sell into any rally. At $39, the stock is already trading at 12 times fiscal 2018 estimates of $3.23 per share. The three-year average forward multiple for Best Buy is about 12.1, so the stock is already there. The company has no top-line growth.
Earnings are mostly coming from cost savings or lower tax rates. The company has already saved $1.2 billion of its $1.4 billion cost reduction plan, so going forward it will be a lot tougher to squeeze out savings to drive earnings per share.
In my opinion, there are better buys.