Best Buy shares soared nearly 7 percent Thursday after it surprised Wall Street by easily beating estimates at the start of the crucial holiday season.
Strong back-to-school sales, hot new gadgets and lucrative partnerships with electronics makers all combined to send Best Buy’s U.S. same-store sales up 3.2 percent — even as analysts were bracing for a decline.
The surprisingly strong numbers prompted some analysts to raise their price targets on Best Buy stock, despite CEO Hubert Joly’s fondness for highlighting the many struggles the company faces.
“We continue to view Best Buy as one of our favorite stocks in our coverage universe and believe that today’s Q3 results were just another indication that this turnaround is happening,” Credit Suisse analyst Gary Balter wrote Thursday in a note to clients.
Balter noted that Best Buy is among companies “previously viewed as roadkill for Amazon,” which are now showing a resilience that Wall Street didn’t always appreciate. He’s optimistic about its holiday results, due partly to hot new items like 4K TVs, and sees more strength ahead.
But on Thursday’s call, Joly continued to play down expectations, saying he expects Best Buy’s sales to be flat over the holidays. His list of trouble spots include port snarls on the West Coast, holiday price-cutting even more extreme than last year, and a product shift to lower-margin electronic gear.
But increasingly, analysts aren’t completely buying the under-promising schtick, looking instead to the over-delivering half of the equation.
Best Buy has been cutting costs and revamping stores to improve results as it faces increased competition from online retailers and discount stores. For example, it has been increasing its speedier “ship from store” deliveries. Last year it shipped from 400 stores, and this year it will ship items from all 1,400 of its stores.
In the third quarter, revenue edged up less than 1 percent to $9.38 billion. Analysts expected revenue to decline to $9.1 billion, according to Zacks Investment Research. Revenue in stores open at least one year rose 2.2 percent in the quarter. While international same-store sales fell 3 percent, those in the U.S. rose 3.2 percent.
Computers, video games, TVs and appliances were the best-selling items. Sales of services, tablets and phones were weaker, despite the flashy launch of Apple’s iPhone 6 in September.
Net income after paying preferred dividends totaled $107 million, or 30 cents per share. That compares with net income of $54 million, or 16 cents per share. Adjusted for one-time items, net income totaled 32 cents per share. Analysts expected 25 cents per share.
Best Buy shares $2.48, or nearly 7 percent, to $38.02.
The Associated Press contributed to this article. Follow Tom Webb at twitter.com/TomWebbMN.
