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Did Best Buy’s Slumping Holiday Sales Hurt the Quarter?

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February 24, 2016
Best Buy earnings

The retail earnings parade continues with electronics behemoth Best Buy (BBY) ahead of the bell Friday. The company issued a warning last month because of lackluster holiday sales. Macy’s (M) alerted investors last month too that its earnings would be under pressure but surprised Wall Street this week with better-than-expected profits. Did BBY see a pick-up in sales in January?

In January, BBY warned investors that same-store sales slumped 1.4% during the important nine-week holiday-shopping season. The company said smartphone sales dropped some 7%. 

Over the last few years, BBY has exceeded Wall Street’s expectations in 11 straight quarters. Analysts polled by Thomson Reuters are now anticipating, on average, Q4 sales of $13.61 billion, down 4.2% from the same period last year. Analysts have indicated that profit per share is expected to drop 6% to $1.39. 

Sales Warning Sends BBY Lower

The stock has been mostly on a downward trajectory since mid-September. It hit a 52-week low in mid-January, dropping 10% after it warned about the sales slowdown, but managed to rebound by about 14% since then.

Short-term option traders have priced in a potential 7.5% share price move in either direction around the earnings release, according to the TD Ameritrade thinkorswim® platform’s Market Maker Move indicator.

Going into earnings the Feb 30 put sellers were active on Tuesday as were the monthly March 33 call sellers. The implied volatility is at the 70th percentile, not as high as we’ve seen in other retailers this earnings season.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price and over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

bby, best buy, bby earnings

FIGURE 1: FILLING THE GAP.

After issuing a profit warning in mid-January, BBY gapped down and carved out a 52-week low at $25.31. Since then, the stock rebounded back to around $30. Chart source: TD Ameritrade’s thinkorswim® platform. Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

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