Shares of Best Buy (BBY) are trading down 6% at a three-month low despite reporting solid first quarter results this morning.
The nation's largest electronics retailer exceeded estimates on the top and bottom line for the sixth consecutive quarter.
Comparable store sales grew 1.1% versus the company's guidance for a 0-1% increase. The company was able to post positive comp sales for the ninth consecutive quarter despite tough comparisons, a cyclical slowdown in gaming, and the saturated smartphone market.
Gross profit margins increased 40 basis points due to the margin-accretive Great Call acquisition and higher merchandise margins, helped by strategic cost initiatives and offset by higher transportation costs.
Adjusted operation margins expanded 50 basis points to 3.8% and adjusted earnings grew 24%, helped by share repurchases.
The company guided second quarter sales and profit in-line with estimates and reaffirmed its outlook for fiscal 2020 despite the recent tariff increase to 25% on Chinese imports.
Management said that it has been able to minimize the tariff impact by working with the White House to create exemptions, increasing inventories ahead of time, and working with vendor partners. Management will continue to work with the administration to limit the impact of any further tariffs under consideration, but they did note that additional duties would be passed on to the consumer.
Sentiment regarding equities remains poor as investors grapple with uncertainty regarding trade and tariffs. Broader market weakness appears to be a primary culprit for BBY's weakness this session.
Hubert Joly is stepping down as CEO next month, but he will stay with the company as Executive Chairman. Incoming CEO and current Chief Financial/Strategic Transformation Officer Corie Barry is expected to hit the ground running. She was the chief architect of the company's strategic initiatives that have been so successful in recent years.
Best Buy plans to hold an analyst meeting later this year where management can lay out new financial targets. The company effectively reached its fiscal 2021 targets two years early.
Best Buy continues to execute well in a difficult retail environment, but the stock has been consolidating in a wide range since breaking out to new highs in 2017.