Category: BBY

BBY – What To Expect From Best Buy's Stock Post Q2 Release?

Best Buy (NYSE: BBY), a specialty retailer of consumer electronics, is scheduled to report its fiscal second-quarter results on Tuesday, August 24. We expect the retailer’s stock to likely trade higher post Q2 with both revenues and earnings beating expectations. Best Buy benefited from people transitioning to working from home during the pandemic with the growth in sales of products such as batteries, PCs, laptops, LCDs, printers, and refrigerators. Consequently, the retailer was able to drive consumers to purchase electronics online without losing customers to Amazon

AMZN
in FY 2021 (year ended Jan 2021). This trend continued into Q1 as well, where Best Buy’s comparable sales metrics jumped 37.2% rather than growing 17.1% for the quarter as the market had expected. The strong housing market-inspired consumers to invest in technology and appliances. We expect this trend to continue into Q2, as well. However, we anticipate customers to step up spending in other areas, such as travel and dining out, in the second half of the year.

Our forecast indicates that Best Buy’s valuation is $118 a share, which is 8% higher than the current market price. Look at our interactive dashboard analysis on Best Buy’s Pre-Earnings: What To Expect in Q2? for more details.

(1) Revenues expected to be marginally ahead of consensus estimates

Trefis estimates Best Buy’s Q2 2022 revenues to be around $11.6 Bil, slightly higher than the consensus estimate. In Q1, the retailer’s revenue of $11.6 billion topped the consensus by 11% and grew 37% year-over-year (y-o-y). While this selling period compared to a depressing prior-year period that included some of the most intense retailing lockdowns of the pandemic, the recent Q1 results also smashed results from the same period in 2019, which saw sales grow to $9.1 billion. The company said it had sales growth across almost all categories, with the largest gains in home theater, computing, and appliances. We expect this growth momentum into the second quarter, as well.

Looking ahead, we also believe that the servicing of electronics will grow, setting up Best Buy’s Geek Squad services for more business down the road. For the full year, Best Buy expects same-store sales to grow 3% to 6% this year. It had previously stated that they would range from a decline of 2% to a growth of 1%.

2) EPS likely to beat consensus estimates

Best Buy’s Q2 2022 earnings per share are expected to be $1.90 per Trefis analysis, 3% higher than the consensus estimate of $1.85. In Q1, the company’s EPS of $2.23 delivered an approximate 60% surprise above analyst average forecasts of $1.39. The company saw a modest gross profit margin uptick y-o-y as it relied less on promotions in Q1. However, this gain was partially offset by rising costs in areas like fulfillment and labor.

For the full year, we expect Best Buy’s adjusted net margin to decline slightly from 4.4% in fiscal 2021 to 4.2% in fiscal 2022. This coupled with a 4% y-o-y decline (due to a strong comparison to the second half of FY 2021) in Best Buy’s revenues, could lead to a fall of $200 million y-o-y in adjusted net income to $1.9 billion in FY 2022.

(3) Stock price estimate higher than the current market price

Going by our Best Buy’s Valuation, with an EPS estimate of around $7.38 and P/E multiple of 16.0x in fiscal 2021, this translates into a price of around $118, which is 8% higher than the current market price of roughly $110.

E-commerce is eating into retail sales, but this might be an investment opportunity. See our theme on E-commerce Stocks for a diverse list of companies that stand to benefit from the big shift.

See all Trefis Featured Analyses and Download Trefis Data here

BBY – House budget resolution vote, Fed's Jackson Hole meeting, Best Buy earnings top week ahead

The upcoming week will feature a slew of earnings from big names including Advanced Auto Parts, Best Buy, Big Lots, Dicks Sporting Goods, Nordstrom, Urban Outfitters, Burlington Stores, Dollar General, Dollar Tree, Peloton Interactive, Gap, HP, and Dell Technologies. 

House lawmakers are also expected to take up a $3.5 trillion budget resolution passed by the Senate earlier this month. In addition, the Federal Reserve Bank of Kansas City will hold its annual economic symposium in Jackson Hole, Wyoming in the back half of the week. 

Ticker Security Last Change Change %
I:DJI DOW JONES AVERAGES 35120.08 +225.96 +0.65%
SP500 S&P 500 4441.67 +35.87 +0.81%
I:COMP NASDAQ COMPOSITE INDEX 14714.663065 +172.87 +1.19%

This as the markets are trading higher after falling last week on concerns about the delta variant and the Federal Reserve‘s announcement that tapering its support for the economy could begin as early as this year. 

FOX Business takes a look at the upcoming events that are likely to move financial markets in the coming days. 

Monday 8/23

Kicking off the week for earnings will be JD.com and Madison Square Garden Entertainment before the market open, followed by Palo Alto Networks after the closing bell. Investors will also be watching the national activity index and existing home sales.

Ticker Security Last Change Change %
JD JD.COM, INC. 63.62 +1.43 +2.30%
MSGE MADISON SQUARE GARDEN ENTERTAINMENT CORP. 62.43 +0.88 +1.43%
PANW PALO ALTO NETWORKS, INC. 367.46 +4.56 +1.26%

In the world of politics, the House of Representatives is expected to cut its recess short and return to session to take up a $3.5 trillion budget resolution on Monday, which includes $550 billion in new infrastructure spending. In addition, House Majority Leader Steny Hoyer said lawmakers also may take up other legislation such as the John Lewis Voting Rights Act. 

Ticker Security Last Change Change %
GM GENERAL MOTORS CO. 48.80 -0.28 -0.57%
F FORD MOTOR CO. 12.57 -0.10 -0.79%

Other notable events on Monday include General Motors’ Lansing Delta Assembly plant resuming production and the beginning of Ford’s recall of certain trucks and SUVs. The International Monetary Fund will also dish out $650 billion in its biggest reserve distribution ever.

Tuesday 8/24

Advanced Auto Parts, Best Buy and Medtronic are slated to report earnings before the market open on Tuesday, while Intuit, Nordstrom, Toll Brothers and Urban Outfitters will report after the closing bell. Economic data to watch on Tuesday includes building permits and new home sales. 

Ticker Security Last Change Change %
AAP ADVANCE AUTO PARTS, INC. 209.68 +1.31 +0.63%
BBY BEST BUY CO., INC. 112.63 +2.87 +2.61%
MDT MEDTRONIC PLC 129.90 +0.97 +0.75%
INTU INTUIT, INC. 545.30 +1.86 +0.34%
JWN NORDSTROM, INC. 35.11 +1.17 +3.45%
TOL TOLL BROTHERS, INC. 59.52 +1.62 +2.80%
URBN URBAN OUTFITTERS, INC. 37.81 +1.29 +3.53%

In addition, ReNew Power will make its debut on the Nasdaq Tuesday under the ticker symbols RNW and RNWWW. Approximately 88% of the votes cast by shareholders on the business combination proposal with special purpose acquisition company RMG II were in favor of the measure. The $8 billion deal marks the biggest overseas SPAC listing of an Indian company. 

Wednesday 8/25

On Wednesday investors will hear from big retail names including Dick’s Sporting Goods, Express, Shoe Carnival. Meanwhile, Autodesk, Box, NetApp, Salesforce, Snowflake and Ulta Beauty will all be delivering earnings results after the bell. 

Ticker Security Last Change Change %
DKS DICK’S SPORTING GOODS, INC. 109.82 +4.79 +4.56%
EXP EAGLE MATERIALS, INC. 150.58 +1.45 +0.97%
SCVL SHOE CARNIVAL 38.27 +2.21 +6.13%
ADSK AUTODESK, INC. 334.38 +4.03 +1.22%
BOX BOX INC 24.87 +0.24 +0.97%
CRM SALESFORCE.COM, INC. 256.13 +3.06 +1.21%
SNOW SNOWFLAKE, INC. 266.67 -12.78 -4.57%
ULTA ULTA BEAUTY, INC. 366.77 +5.91 +1.64%

Economic data in focus on Wednesday includes durable goods, weekly mortgage applications and the Energy Information Administration’s weekly crude stocks.

President Joe Biden delivers a speech on infrastructure spending at Carpenters Pittsburgh Training Center, Wednesday, March 31, 2021, in Pittsburgh. (AP Photo/Evan Vucci)

President Biden will also meet with private sector executives on Wednesday to discuss ways to strengthen cybersecurity as hackers have stepped up ransomware attacks throughout 2021. Check Point Research estimates that the number of ransomware attacks, in which a bad actor seizes a company or individual’s data and withholds it until a ransom is paid, has increased by 93% each week over the last 12 months. The firm notes that North America has experienced a 32% surge in ransomware attacks in the last six months alone.

Ticker Security Last Change Change %
DIS THE WALT DISNEY CO. 175.12 +1.87 +1.08%

Also on Wednesday, Disneyland will open sales for its Magic Keys program, a replacement for its Annual Pass. The program, which is split into four separate tiers dubbed Dream Key, Believe Key, Enchant Key and Magic Key, will offer special perks including dining, merchandise, and parking discounts and the ability to hold multiple theme park reservations at a time. 

In this image from video made available by Blue Origin, the New Shepard rocket lifts off during a test in West Texas on Wednesday, April 14, 2021. (Blue Origin via AP)

In addition, Blue Origin will fly its 17th New Shepard mission to date. The mission, which will liftoff at 9:35 a.m. Eastern Time from Launch Site One in West Texas, will carry a NASA lunar landing technology demonstration on the exterior of its booster, 18 commercial payloads inside the crew capsule, 11 of which are NASA-supported, and an art installation on the exterior of the capsule. To date, New Shepard has flown more than 100 payloads to space across 11 flights.

Thursday 8/26

Thursday marks the busiest day for earnings with 1-800-Flowers, Abercrombie & Fitch, Build-A-Bear Workshop, Burlington Stores, Coty, Dollar General, Dollar Tree, Hain Celestial Group, JM Smucker, and Sanderson Farms all set to report before the market open. 

Ticker Security Last Change Change %
FLWS 1 800 FLOWERS COM 29.30 -0.08 -0.27%
ANF ABERCROMBIE & FITCH CO. 38.02 +0.56 +1.49%
BBW BUILD A BEAR WORKSHOP INC 14.65 +0.43 +3.02%
BURL BURLINGTON STORES 347.52 -1.37 -0.39%
COTY COTY, INC. 7.86 +0.10 +1.29%
DG DOLLAR GENERAL CORP. 234.78 +2.31 +0.99%
DLTR DOLLAR TREE, INC. 102.67 +1.61 +1.59%
HAIN THE HAIN CELESTIAL GROUP, INC. 40.31 +0.21 +0.52%
SJM THE J. M. SMUCKER CO. 131.28 -1.10 -0.83%
SAFM SANDERSON FARMS, INC. 192.50 -0.34 -0.18%

Meanwhile, taking the spotlight after the bell on Thursday will be big names including Dell Technologies, Gap, HP, Peloton Interactive and Workday. 

Ticker Security Last Change Change %
DELL DELL TECHNOLOGIES, INC. 98.50 +2.28 +2.37%
GPS GAP, INC. 28.27 +0.85 +3.10%
HP HELMERICH & PAYNE, INC. 24.13 -0.12 -0.49%
PTON PELOTON INTERACTIVE, INC. 108.07 +0.27 +0.25%
WDAY WORKDAY, INC. 235.95 +4.05 +1.75%

As for economic data, investors will be watching corporate profits, GDP, and weekly initial and continuing jobless claims. 

Friday 8/27

Big Lots will wrap up the week for earnings data, while personal income, consumer spending, the core PCE price index and the University of Michigan’s consumer sentiment index will finish out the week for economic data. 

Ticker Security Last Change Change %
BIG BIG LOTS, INC. 56.07 +1.40 +2.56%

The Federal Reserve Bank of Kansas City will also holds its economic policy symposium titled “Macroeconomic Policy in an Uneven Economy” in Jackson Hole, Wyoming. The event, which was originally slated to host in-person attendees, has switched to a virtual only event due to the “recently elevated COVID-19 health risk level” in Teton County, Wyoming.

“While we are disappointed that health conditions will prevent us from being able to gather in person at the Jackson Lake Lodge this year as we had planned, the safety of our guests and the Teton County community is our priority,” said Kansas City Fed president and CEO Esther George said in a statement.

Federal Reserve Chairman Jerome Powell’s remarks will be live-streamed to the public 10 a.m. eastern time on the Kansas City Fed’s YouTube channel.

FILE PHOTO: Federal Reserve Chair Jerome Powell attends the Federal Reserve Bank of Kansas City’s annual Jackson Hole Economic Policy Symposium in Jackson Hole, Wyoming August 28, 2015. REUTERS/Jonathan Crosby/File Photo/File Photo (REUTERS/Jonathan Crosby/File Photo/File Photo / Reuters Photos)

It will also be a big day for the newly public Astra Space, which will conduct its first orbital launch on Friday in which it will carry a test payload for the U.S. Space Force’s Space Test Program. 

Ticker Security Last Change Change %
ASTR HOLICITY INC 9.62 +0.12 +1.26%

The mission, dubbed STP-27AD1, will take place at Astra’s Kodiak Spaceport, located at the Pacific Spaceport Complex in Kodiak, Alaska. The launch window will begin at 1:00PM pacific time on Friday and remain open through Saturday Sept. 11.

BBY – Best Buy (BBY) Outpaces Stock Market Gains: What You Should Know

In the latest trading session, Best Buy (BBY Free Report) closed at $114.83, marking a +1.37% move from the previous day. The stock outpaced the S&P 500’s daily gain of 0.24%.

Prior to today’s trading, shares of the consumer electronics retailer had gained 0.2% over the past month. This has lagged the Retail-Wholesale sector’s gain of 0.22% and the S&P 500’s gain of 4.09% in that time.

BBY will be looking to display strength as it nears its next earnings release. On that day, BBY is projected to report earnings of $1.91 per share, which would represent year-over-year growth of 11.7%. Meanwhile, our latest consensus estimate is calling for revenue of $11.6 billion, up 17.05% from the prior-year quarter.

BBY’s full-year Zacks Consensus Estimates are calling for earnings of $8.53 per share and revenue of $49.56 billion. These results would represent year-over-year changes of +7.84% and +4.86%, respectively.

Any recent changes to analyst estimates for BBY should also be noted by investors. These revisions help to show the ever-changing nature of near-term business trends. As a result, we can interpret positive estimate revisions as a good sign for the company’s business outlook.

Based on our research, we believe these estimate revisions are directly related to near-team stock moves. To benefit from this, we have developed the Zacks Rank, a proprietary model which takes these estimate changes into account and provides an actionable rating system.

Ranging from #1 (Strong Buy) to #5 (Strong Sell), the Zacks Rank system has a proven, outside-audited track record of outperformance, with #1 stocks returning an average of +25% annually since 1988. The Zacks Consensus EPS estimate remained stagnant within the past month. BBY is currently sporting a Zacks Rank of #2 (Buy).

In terms of valuation, BBY is currently trading at a Forward P/E ratio of 13.29. This valuation marks a no noticeable deviation compared to its industry’s average Forward P/E of 13.29.

Also, we should mention that BBY has a PEG ratio of 1.6. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock’s expected earnings growth rate. Retail – Consumer Electronics stocks are, on average, holding a PEG ratio of 0.97 based on yesterday’s closing prices.

The Retail – Consumer Electronics industry is part of the Retail-Wholesale sector. This group has a Zacks Industry Rank of 66, putting it in the top 26% of all 250+ industries.

The Zacks Industry Rank includes is listed in order from best to worst in terms of the average Zacks Rank of the individual companies within each of these sectors. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

Be sure to follow all of these stock-moving metrics, and many more, on Zacks.com.

BBY – Best Buy (BBY) Dips More Than Broader Markets: What You Should Know

In the latest trading session, Best Buy (BBY Free Report) closed at $110.59, marking a -1.26% move from the previous day. This change lagged the S&P 500’s 0.75% loss on the day.

Prior to today’s trading, shares of the consumer electronics retailer had gained 2.28% over the past month. This has outpaced the Retail-Wholesale sector’s gain of 1.15% and lagged the S&P 500’s gain of 2.74% in that time.

BBY will be looking to display strength as it nears its next earnings release. On that day, BBY is projected to report earnings of $1.91 per share, which would represent year-over-year growth of 11.7%. Meanwhile, the Zacks Consensus Estimate for revenue is projecting net sales of $11.6 billion, up 17.05% from the year-ago period.

BBY’s full-year Zacks Consensus Estimates are calling for earnings of $8.53 per share and revenue of $49.56 billion. These results would represent year-over-year changes of +7.84% and +4.86%, respectively.

It is also important to note the recent changes to analyst estimates for BBY. These revisions typically reflect the latest short-term business trends, which can change frequently. As such, positive estimate revisions reflect analyst optimism about the company’s business and profitability.

Based on our research, we believe these estimate revisions are directly related to near-team stock moves. We developed the Zacks Rank to capitalize on this phenomenon. Our system takes these estimate changes into account and delivers a clear, actionable rating model.

The Zacks Rank system ranges from #1 (Strong Buy) to #5 (Strong Sell). It has a remarkable, outside-audited track record of success, with #1 stocks delivering an average annual return of +25% since 1988. Over the past month, the Zacks Consensus EPS estimate remained stagnant. BBY currently has a Zacks Rank of #1 (Strong Buy).

Digging into valuation, BBY currently has a Forward P/E ratio of 13.14. This valuation marks a premium compared to its industry’s average Forward P/E of 10.77.

Also, we should mention that BBY has a PEG ratio of 1.59. The PEG ratio is similar to the widely-used P/E ratio, but this metric also takes the company’s expected earnings growth rate into account. The Retail – Consumer Electronics industry currently had an average PEG ratio of 0.98 as of yesterday’s close.

The Retail – Consumer Electronics industry is part of the Retail-Wholesale sector. This industry currently has a Zacks Industry Rank of 32, which puts it in the top 13% of all 250+ industries.

The Zacks Industry Rank includes is listed in order from best to worst in terms of the average Zacks Rank of the individual companies within each of these sectors. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

Make sure to utilize Zacks. Com to follow all of these stock-moving metrics, and more, in the coming trading sessions.

BBY – Is Best Buy (BBY) Stock Undervalued Right Now?

The proven Zacks Rank system focuses on earnings estimates and estimate revisions to find winning stocks. Nevertheless, we know that our readers all have their own perspectives, so we are always looking at the latest trends in value, growth, and momentum to find strong picks.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system’s “Value” category. Stocks with “A” grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.

One company value investors might notice is Best Buy (BBY Free Report) . BBY is currently holding a Zacks Rank of #2 (Buy) and a Value grade of A. The stock holds a P/E ratio of 12.65, while its industry has an average P/E of 24.25. Over the last 12 months, BBY’s Forward P/E has been as high as 18.83 and as low as 12.65, with a median of 15.45.

We also note that BBY holds a PEG ratio of 1.53. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company’s expected EPS growth rate. BBY’s PEG compares to its industry’s average PEG of 2.47. Over the past 52 weeks, BBY’s PEG has been as high as 2.48 and as low as 1.26, with a median of 2.03.

We should also highlight that BBY has a P/B ratio of 6.59. The P/B ratio pits a stock’s market value against its book value, which is defined as total assets minus total liabilities. This stock’s P/B looks solid versus its industry’s average P/B of 10.08. Over the past 12 months, BBY’s P/B has been as high as 8.28 and as low as 5.55, with a median of 6.91.

Finally, investors should note that BBY has a P/CF ratio of 9.12. This figure highlights a company’s operating cash flow and can be used to find firms that are undervalued when considering their impressive cash outlook. This company’s current P/CF looks solid when compared to its industry’s average P/CF of 13.56. Over the past 52 weeks, BBY’s P/CF has been as high as 12.91 and as low as 9.12, with a median of 11.33.

Value investors will likely look at more than just these metrics, but the above data helps show that Best Buy is likely undervalued currently. And when considering the strength of its earnings outlook, BBY sticks out at as one of the market’s strongest value stocks.

BBY – Buy BBY Stock Before Earnings Amid Strong Retail Results?

The first quarter earnings season has been impressive, from technology titans such as Apple (AAPL Free Report) all the way to the recent reports from Target (TGT Free Report) and other big retailers. Best Buy (BBY Free Report) benefitted from the coronavirus-forced remote schooling and work push. But the strong showing might put pressure on the consumer electronics retailer in 2021.

Let’s look at BBY ahead of its Q1 FY22 financial release before the opening bell on Thursday, May 27 to see if investors might want to buy the stock.

Tech Retail Growth

Best Buy sells smartphones, TVs, connected-appliances, and nearly every other consumer electronics device under the sun. The firm benefitted from remote work and school, as people were forced to purchase laptops, tablets, and more to adapt.

The coronavirus aside, tech devices and the broader consumer electronics space will grow for years in our digital and device-heavy world. BBY, like every other retailer, has spent the last several years working to improve its digital commerce offerings in order to succeed long-term in an age where millions of shoppers crave the convenience Amazon (AMZN Free Report) helped popularize and normalize.

Best Buy’s revenue climbed by 8.3% last year for its best top-line expansion in ten years. Meanwhile, its adjusted earnings jumped 30%. The company’s online sales helped drive its growth last year, with domestic comparable online sales up 144%.

Executives said that online sales made up about 43% of total Q4 revenue. “Our stores played a pivotal role in the fulfillment of these sales, as almost two-thirds of our online revenue was either picked up in store or curbside, shipped from a store or delivered by a store employee,” CEO Corie Barry said in prepared remarks.

More recently, BBY joined Walmart (WMT Free Report) and other retailers in the subscription services space. Best Buy announced on April 7 that it’s piloting a new membership program, called Best Buy Beta. The $199.99 a year service includes “exclusive member pricing, unlimited Geek Squad technical support, up to two years of protection on most product purchases, free standard shipping and delivery, and free installation on most products and appliances,” as well as some other perks.

What’s Next?

Best Buy said last quarter it expects online sales to account for approximately 40% of total domestic sales this year. The company also announced plans to buy back “at least $2 billion” in stock. Peeking ahead, Zacks estimates call for its adjusted Q1 FY22 earnings to soar 103% to $1.36 a share on 21% higher sales.

These projections come up against an easier to compare period, given BBY’s fiscal year ended on January 30 and its first quarter will include the three-month period ended near May 1. With this in mind, Best Buy’s adjusted fiscal 2022 (current year) EPS is projected to slip 6.3% on 1% lower revenue.

BBY does boast a solid history of quarterly earnings beats, including big beats in the first three quarters last year. And it has seen its earnings outlook turn more positive recently.

Bottom Line

Best Buy has soared 310% over the last five years to easily top Walmart, Target, and the S&P 500. BBY is also up 50% in the last year and 15% in 2021 to continue its outperformance. BBY closed regular hours Tuesday at $114.42 a share, which puts it about 10% below its records. The recent pullback has also pushed it under neutral RSI levels at 43.

Despite this growth and outperformance, BBY trades at a significant discount against some of its competitors at 14.9X forward 12-month earnings and its industry’s 28.8X average. This also marks value compared to its own year-long median. Furthermore, Best Buy’s 2.44% dividend yield crushes the S&P 500, the 10-year Treasury’s 1.56%, and Walmart’s 1.55%.

Best Buy’s earnings revision activity helps it land a Zacks Rank #3 (Hold) at the moment, alongside “A” grades for Growth, Value, and Momentum in our Style Scores system. All of this means some investors might want to consider BBY as a solid retailer to add to their longer-term portfolios.

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BBY – Behind The Scenes Of Best Buy's Record-Setting Turnaround With Hubert Joly

When Hubert Joly took over as CEO at Best Buy in 2012, the retailer was on life support, struggling to compete with the prices of online retailers like Amazon. Many people thought he was crazy; some even called him “suicidal” for taking the job. Employee turnover was high and morale was dismal. From its perch in the ’90s as America’s unquestioned leader in the consumer electronics retail space, Best Buy had fallen all the way to late-night punch line. But nine years later, it’s not unreasonable to say that Joly led one of the most remarkable turnarounds in retail history, the likes of which many other retailers are now scrambling to emulate.

When Joly stepped down as CEO in 2019 to become executive chairman of the Best Buy board, the company he inherited was transformed. Under his leadership, the company boasted

·      five consecutive years of sales growth

·      a 25.8 percent non-GAAP return on investment, up from 10.5 percent in 2013

·      achieving GAAP operating income targets two years ahead of schedule

·      a doubling of U.S. online sales from 2012, to $6.5 billion (17 percent of all Best Buy revenue)

The company’s transformation has been felt through every nook and cranny of the organization, including management. Joly’s successor, Corrie Barry, is the first woman CEO in Best Buy’s 55-year history. (Perhaps not unrelatedly, the current Best Buy board is majority female.) Additionally, under Joly’s leadership, the company established dozens of Teen Tech Centers in cities around the country. These tech hubs offer teens in communities with limited resources access to cutting-edge technology, connections to mentors, and career coaching.

On May 24 Joly will publish his much-anticipated book drawing from his experiences at Best Buy, The Heart of Business: Leadership Principles for the Next Era of Capitalism. As part of the research for my forthcoming book, To Be Honest: Lead with the Power of Truth, Justice and Purpose, I spoke with Joly to learn more about his extraordinary leadership.

Among other things, we discussed the company’s remarkable turnaround, the importance of simplicity, and why businesses should always strive to “be human.”

Immediately after taking the reins, Joly instituted several critical changes. The first major change was to offer price-matching, which helped erase online competitors’ biggest advantage and gave Best Buy some space to breathe. Other innovations, like shifting the company’s focus to just a few critical metrics, quickly revealed their value. It all started, he says, with a deceptively simple tactic: listening to his employees.

No one knows your customer like frontline staff. “My first official week was [spent] working in stores. And I learned so much. I learned about showrooming, how customers would go into the stores and leave empty-handed after speaking with the associate for 30 minutes. That led us to the decision to empower employees to price match, which proved to be an important breakthrough at the start of our turnaround. In another store, an associate said to me, ‘Hubert, please fix the search engine on the bestbuy.com website. It doesn’t work.’ I asked, ‘What do you mean?’ They said to me, ‘If you type in Cinderella, you get Nikon cameras.’ Since losing sales online to competitors was a major threat, we fixed it quickly.”

Another change was revamping the company’s key performance indicators (KPIs). When Joly became CEO, Best Buy store managers were expected to measure 40 to 50 KPIs. The (predictable) result was excessive stress and underperformance across the company. Joly reduced the company priorities to two, reasoning at the time, “We only have two problems at Best Buy: revenue has been going down and margins have been going down. Only two problems. How hard can it be to solve two problems? If we had five problems, I don’t know, but two, how hard can it be?” Like his decision to offer price-matching, this idea came from his long conversations with employees at every level. “If you ask anybody who was at Best Buy at the time, ‘What were the two problems you were trying to solve?’ Everybody would know.” Best Buy’s problems were obvious. But buried under the complexity of a system that was burdensome, seeing those problems through the eyes of customers was nearly impossible.

These adjustments helped stabilize the ship. But roughly three years into his tenure, Joly knew that if the company wanted to not just stay solvent but return to its previous status as a retail leader, it would have to be even more ambitious. It would have to decisively answer the questions “Who are we?” and “What do we want for our customers?” In other words, Best Buy would have to define its purpose—and then live up to it.

You can’t fake purpose. Joly readily acknowledges that “purpose” has become something of a fad in the corporate world, with more cynical companies using it for little more than a PR boost. But he wasn’t deterred. In those early years, when he first took over, Best Buy managers were too busy putting out fires to even think about purpose, he says. Once they gained a bit of breathing room, however, they realized Best Buy had a real opportunity to radically reset its relationship with customers. “Price competitiveness was just the price of entry to the game. I wanted us to win on advice, convenience, and service,” Joly told me.

He also recognized that the company’s purpose had to be organic and bottom-up; it couldn’t come from him, or any of the executives. At a retreat with his general managers, all of them were asked, “What drives you?” The responses were humbling. “Usually it’s family, it’s friends, it’s their community, their favorite charity. Very, very simple stuff. You don’t start with a corporate purpose, you start with what drives the individuals, which is the big mistake that companies make now.

“That’s when we decided that we were not in the business of selling TVs or computers, although we would be happy to sell you one if you wanted to buy one, but that we were in the business of enriching lives through technology.”

Be Human. Internal values surveys kept returning to the same idea: family, friends, community are what counts. Customers, executives realized, didn’t want salespeople. They wanted “an inspiring friend”—someone who could patiently and knowledgably guide them to the best technology products for their needs. This led Best Buy to adopt an internal mandate to simply “be human.” “When you interact with the customer, get to know them,” Joly instructed his staff. “Don’t be mechanical, don’t go after their wallets, think of the customer as your grandmother or your best friend. How would you interact with them?”

There’s a logic, even beauty, in using simplicity as a guiding philosophy. Simple isn’t easy, though, despite its obvious allure. As Joly’s experience illustrates, it takes a creative, experienced hand to keep things from getting, well, complicated.

You can see more of my interview with Hubert Joly live here on this episode of Moments of Truth.

BBY – Best Buy Co Stock Is Estimated To Be Significantly Overvalued

The stock of Best Buy Co (NYSE:BBY, 30-year Financials) shows every sign of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $118.99 per share and the market cap of $29.8 billion, Best Buy Co stock appears to be significantly overvalued. GF Value for Best Buy Co is shown in the chart below.

Best Buy Co GF Value Chart

Because Best Buy Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 9.4% over the past three years and is estimated to grow 0.71% annually over the next three to five years.

Link: These companies may deliever higher future returns at reduced risk.

Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company’s financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Best Buy Co has a cash-to-debt ratio of 1.38, which which ranks better than 68% of the companies in the industry of Retail – Cyclical. The overall financial strength of Best Buy Co is 6 out of 10, which indicates that the financial strength of Best Buy Co is fair. This is the debt and cash of Best Buy Co over the past years:

debt and cash

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Best Buy Co has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $47.3 billion and earnings of $6.84 a share. Its operating margin is 5.60%, which ranks better than 66% of the companies in the industry of Retail – Cyclical. Overall, the profitability of Best Buy Co is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Best Buy Co over the past years:

Revnue and Net Income

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Best Buy Co is 9.4%, which ranks better than 74% of the companies in the industry of Retail – Cyclical. The 3-year average EBITDA growth rate is 14%, which ranks in the middle range of the companies in the industry of Retail – Cyclical.

Another way to evaluate a company’s profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Best Buy Co’s ROIC was 21.40, while its WACC came in at 10.04. The historical ROIC vs WACC comparison of Best Buy Co is shown below:

ROIC vs WACC

In closing, the stock of Best Buy Co (NYSE:BBY, 30-year Financials)gives every indication of being significantly overvalued. The company’s financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Retail – Cyclical. To learn more about Best Buy Co stock, you can check out its 30-year Financials here. To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

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BBY – Best Buy Tests Smaller, Digital-Friendly Store Format

Best Buy will be debuting new stores that will feature a smaller overall size as the company focuses more on eCommerce, Bloomberg reported.

The new format will focus on getting digital orders out and will be around half the size of the usual stores, according to the report.

Best Buy’s idea is akin to the way many retailers are retooling their operations to accommodate the shift away from in-person stores. The company is planning to shift stores in one or two markets to the new setup, cutting overall square footage for shoppers to around 15,000 square feet instead of the usual 27,000, Bloomberg reported.

The additional space will go toward giving more room to package and prepare digital orders for either pickup or delivery, the report stated.

Online sales increased by nearly three times for Best Buy in the last quarter, but the company has had to cut jobs, Bloomberg reported. The remaining employees in Best Buy’s approximately 1,000 U.S. stores are being trained to work in other parts of the stores. That, according to Best Buy, will “drive efficiencies in labor planning and cost.”

Unlike the retailer’s heyday when almost all of any given store was taken up by TVs and other consoles, the slimmed-down Best Buy locations will come with fewer items, and some locations will use the extra space for more Geek Squad tech support desks, according to Bloomberg.

PYMNTS reported that Best Buy is catering to its base by focusing more on digital sales, with more curbside pickup hours and the store boasting that orders could be ready within the hour, along with more same-day delivery and next-day delivery options.

The company also announced in December that it would be transforming 340 of its stores into ship-from-store hubs. Seventy percent of the ship-from-store units are expected to come from those locations.

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NEW PYMNTS DATA: BUY NOW, PAY LATER CONSUMER STUDY 

About: Buy Now, Pay Later: Millennials And The Shifting Dynamics Of Online Credit, a PYMNTS and PayPal collaboration, examines the demand for new flexible credit options as well as how consumers, especially those in the millennial demographic, are paying online. The study is based on two surveys, totaling nearly 15,000 U.S. consumers.