Down 7% This Year, Will Best Buy Stock Recover Following Q1 Results?

Note: Best Buy’s

Best Buy
FY’24 ended Jan 2024

Best Buy (NYSE: BBY), a specialty retailer of consumer electronics, is scheduled to report its fiscal first-quarter results on Thursday, May 30. We expect the retailer’s stock to grow post-fiscal Q1 with revenues and earnings beating estimates slightly. BBY stock declined 7% from around $78 to $73 since the beginning of this year, underperforming the broader indices, with the S&P growing 11% over the same period. In contrast, BBY’s peer Amazon’s stock (NASDAQ
NASDAQ
: AMZN) has seen its stock rise 20% over the same period. Several big factors hurt the consumer electronics retailing niche, including rampant inflation and supply chain disruptions in FY’24 (which includes 53 weeks). A tough comparison with the pandemic and stimulus-induced growth over the past two years and inflationary headwinds contributed to the slowdown. Best Buy expects the market to slow before sales again begin gaining momentum in fiscal 2025. For the full year FY’25, the company expects revenue of $41.3 billion to $42.6 billion and EPS is expected to land in a range of $5.75 to $6.20. In addition, its comparable sales are expected to land in the range of -3% to 0%.

BBY stock has faced a notable decline of 25% from levels of $100 in early January 2021 to around $73 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. Notably, BBY stock has underperformed the broader market in each of the last 3 years. Returns for the stock were 2% in 2021, -21% in 2022, and -2% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that BBY underperformed the S&P in 2021, 2022, and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL.

In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BBY face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

Our forecast indicates that Best Buy’s valuation is $81 a share, which is 13% higher than the current market price. Look at our interactive dashboard analysis on Best Buy’s Earnings Preview: What To Expect in Q1? for more details.

(1) Revenues expected to beat consensus estimates marginally

Trefis estimates Best Buy’s Q1 2025 revenues to be around $9.3 billion, slightly above the consensus estimate. In Q4, the electronics retailer posted $14.6 billion in revenue, down 0.7% y-o-y. The retailer saw its domestic comparable sales fall 5.1% during the quarter. The largest drivers of the comparable sales decline on a weighted basis were home theater, appliances, mobile phones, and tablets. Those drivers were partially offset by growth in gaming. International comparable sales dropped 1.4% during the quarter. We forecast Best Buy’s Revenues to be $42.2 billion for the full-year fiscal 2025, down 3% y-o-y.

(2) EPS likely to come in slightly above consensus estimates

Best Buy’s Q1 2025 earnings per share is expected to be $1.13 per Trefis analysis, marginally beating the consensus estimate. In Q4, the electronics retailer posted $1.29 compared to $1.38 a year ago in adjusted EPS. Its domestic gross margin improved by 60 basis points y-o-y to 20.4% in Q4, driven by improved financial performance from the company’s membership offerings, which included higher service margin rates. The international business gross margin was down 130 basis points to 22.1% due to unfavorable product margin rates. Also, the retailer’s adjusted operating margin grew to 5.0% in Q4 2024 from 4.8% a year ago.

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

Going by our Best Buy’s Valuation, with an EPS estimate of around $6.03 and a P/E multiple of 13.4x in fiscal 2025, this translates into a price of around $81, which is 13% higher than the current market price.

It is helpful to see how its peers stack up. BBY Peers shows how Best Buy compares against its peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

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