Best Buy (BBY) will report fourth quarter results on Wednesday morning.
This is the first year that the company stopped reporting holiday sales in mid-January so there is much more uncertainty going into this fourth quarter report than there has been historically.
Best Buy generates roughly half of its profits during the fourth quarter so Wednesday is likely the most important day of the year for the stock.
In November, the company reported its third straight better than expected quarter, exceeding guidance on the top and bottom line. Non-GAAP earnings rose 51% to $0.62/share while comparable store sales grew 1.8%. Best Buy had guided for non-GAAP EPS of $0.43-0.47 with comps up 1%.
Best Buy also guided for fourth quarter non-GAAP EPS of $1.62-1.67 (vs. $1.53 last year) on revenue of $13.4-13.6 billion with comps flat (down 1% to up 1%). Best Buy tends to guide conservatively so Wall Street estimates are near the high end of guidance.
Best Buy management has done a very commendable job growing market share in recent years. The company cut costs, partnered with the best technology brands and made its website very competitive to defend against online competition like Amazon plus other big box retailers.
The company has a strong mobile and appliance business and it is doing well at the high end of the TV/home entertainment segment.
Best Buy should benefit from the strong iPhone cycle that is expected next year.
Still, sales are roughly flat. Best Buy is generating earnings growth through share repurchases. Through the first three quarters of fiscal 2017, Best Buy bought back $517 million in stock. Earnings are expected to grow 18% last year and 7% this year. The stock also has sports a 2.5% dividend yield.
BBY has traded in a tight upward channel all year and is now approaching resistance near the $46 level. BBY hit a nine-year high in December following strong Q3 results, but it wasn't long before sector wide concerns took the stock down.
Best Buy trades at a reasonable 14x adjusted earnings or just over 5x EV/EBITDA. The retail sector as a whole trades closer to 8x EV/EBITDA.