Best Buy (BBY) is trading higher after the company reported third quarter sales and earnings above guidance.
Best Buy has exceeded comparable store sales estimates four quarters in a row as comps have grown seven consecutive quarters.
Third quarter same store sales grew 4.3% versus +2.5-3.5% guidance on top of 4.5% growth last year. Domestic comparable sales growth of 4.3% included a ~70 basis point negative impact from a calendar shift resulting from the extra week in FY18.
Consumer electronics comp sales grew 3.7% to a 31% mix, computing and mobile phones comps grew 3.1% to a 47% mix, entertainment comps grew 12.4% while appliances grew 8.4% and services grew 1.9%.
Domestic online revenue increased 12.6% to $1.21 billion on a comparable basis, primarily due to higher conversion rates and increased traffic. As a percentage of total Domestic revenue, online revenue increased 110 basis points to 13.8% versus 12.7% last year.
The gross profit rate declined ~30 basis points to 24.4% due to higher supply chain costs, including both investments and higher transportation costs, and the national roll-out of the Total Tech Support offer. These pressures were partially offset by improved product margin rates, which included the benefit of gross profit optimization initiatives. The company noted that more people buying online and picking up in store has improved the profitability of the online business.
While guidance for fourth quarter EPS was a little light, the company has consistently beaten on the bottom line, showing that guidance is quite conservative. Guidance for same store sales growth of 0-3% was in-line with estimates.
Comparable store sales are expected to grow over 4% for the second straight year. Comparable sales were slightly positive in the three prior years and negative for the four years before that.
The US consumer is strong but Best Buy management deserves credit for improving its online offerings, cutting costs and defending its position as the nation's leading electronics retailer in a competitive environment.
When asked whether positive same-store sales are sustainable on the call, Chief Executive Hubert Joly noted that the company is focused on deepening its relationship with consumers. The recent GreatCall acquisition is a great example, providing value-added services for senior citizens using technology.
With a market value just under $18 billion and a ~12x earnings multiple, the stock trades at a modest discount to the average retailer with a mid-teens earnings multiple. The stock is more than 20% from its all-time high set back in August.