Best Buy Moved Its Full-Year Comparable-Sales Forecast From Roughly Zero to as Much as 3%

Best Buy reported its fiscal second quarter on August 27. Revenue and comparable sales both beat what analysts had modelled, but the more consequential line is the outlook. Three months ago the company was telling investors that comparable sales for the full year could land anywhere between a 1% decline and a 1% gain. It now expects growth of 1.9% to 3.0%.

The quarter

• Revenue: $9.78 billion, up 3.6% year over year
• Enterprise comparable sales: up 4.1%, against 1.6% in the same quarter last year
• Gross profit rate: 23.9%, from 23.2%
• Operating income: $421 million, from $251 million; operating margin 4.3%, from 2.7%
• Adjusted operating income: $417 million, a 4.3% margin against 3.9%
• Adjusted earnings per share: reported at $1.48, against $0.87 a year earlier

Domestic and international

The domestic segment did the work. Revenue there was $9.07 billion, up 4.3%, on comparable sales of 4.5%, with the gross profit rate at 24.0% against 23.4%. Online sales grew 5.1% and accounted for 33.1% of domestic revenue. The international segment went the other way: revenue of $709 million, down 4.2%, comparable sales down 1.8%, though its gross profit rate improved to 22.3% from 21.8%.

What sold

• Computing and mobile phones: comparable sales up 6.8%
• Consumer electronics: up 5.6%
• Services: up 6.4%
• Entertainment: down 6.3%

We outperformed expectations in Q2 with comparable sales growth of 4.1% and higher-than-expected adjusted operating income rate.

The revision, in context

Raising a full-year revenue range by roughly $1 billion at the midpoint, and shifting a comparable-sales range that previously straddled zero, is a larger statement than a single strong quarter. For the third quarter the company guided to comparable sales of 1% to 3% and an adjusted operating income rate of 4.1% to 4.2%. It declared a quarterly dividend of $0.96 a share, payable October 8 to holders of record on September 17, and said it expects about $300 million of share repurchases in the fiscal year.

The quarter also included $34 million of tariff refunds — a real figure, and a small one against $9.78 billion of revenue and $421 million of operating income. It is not what moved the margin.

Why it matters

Guidance is a company's own forecast of itself, and a mid-year revision of this size is a statement that the assumptions behind the earlier number were wrong. The direction of the revision is the information; the precise ranges will be revised again.