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Earnings Preview: Retail Results Continue Tomorrow with Best Buy

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May 24, 2017
Best Buy Laptop Area
iStockphoto.com/97

It’s gotten pretty quiet as far as earnings goes and there’s just a few names left to report first-quarter results. Big-box retailer Best Buy (BBY) releases first-quarter earnings for fiscal 2018 before market open on Thursday, May 25.

The company is expected to report earnings of $0.40 per share, down 9.1% year over year, on revenue of $8.26 billion, according to consensus third-party analyst estimates. Like earnings, analysts are also expecting revenue to decline, down slightly from $8.44 billion in the same period last year. 

For this quarter, management issued guidance of non-GAAP diluted EPS of $0.35 to $0.40 on revenue in the range of $8.2 billion to $8.3 billion. Management has said it expects domestic comparable sales, a retail industry measure used to compare sales at stores open longer than a year, to decline in the range of 1.5% to 2.5% and for international comparable sales to range from flat to a 3% increase.

In last quarter’s earnings call, Best Buy chairman and CEO Hubert Joly reaffirmed the three pillars of the company’s growth strategy, which are to maximize the multi-channel retail business, provide services and solutions that solve real customer needs, and accelerate growth in Canada and Mexico. Joly said he expects continued investments in people and systems to be able to build the capabilities necessary to explore and pursue growth opportunities around its growth strategy, improve execution in key areas, and continue to reduce costs and improve efficiencies.

Analysts will likely be looking to see how the company continues to adapt to competitive threats in the retail landscape as consumers increasingly shop online. Over the years, the electronics retail industry has seen several high-profile bankruptcies including Circuit City and Radioshack. HHGregg is one of the most recent to file for bankruptcy after failing to find a buyer for its stores.

Trading and Options Activity in Best Buy Stock

Best Buy’s stock has surged since the start of the year with shares up just over 20% heading into this quarter’s earnings (figure 1 below). The stock hit a new 52-week high of $52.67 on April 27 and shares closed at $51.55 on May 23.

The options market has priced in a potential stock move of just under 8% in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. In short-term trading at the May 26 weekly expiration, calls had higher volume at the 52 and 52.5 strike prices while puts were more active at the 47 and 50 strikes. As of Wednesday morning the implied volatility is at the 82nd percentile, which is on the high side. 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price 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. 

Best Buy YTD Stock Performance Compared to Amazon and SPSIRE

FIGURE 1: BEST BUY YTD STOCK PERFORMANCE.

As of May 24, Best Buy is up just over 20% year-to-date, lagging Amazon’s (purple line) 28.91% increase and outperforming the S&P Retail Select Industry Index’s (teal line) 8.62% decline. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Good Trading,
JJ
@TDAJJKinahan

NC
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