Best Buy Co. jumped the most in eight months after modestly improving its profit forecast and signaling its recent sales slump is starting to ease.
(Bloomberg) — Best Buy Co. jumped the most in eight months after modestly improving its profit forecast and signaling its recent sales slump is starting to ease.
Adjusted operating income this year will be “slightly higher” than the previous forecast of 4% of sales, the consumer-electronics retailer said Tuesday as it reported third-quarter results. In addition, the decline in comparable sales this year won’t be quite as bad as previously feared, the company said.
The surprisingly upbeat report “suggests that the worst of the sales declines may be behind the company,” Scot Ciccarelli, an analyst at Truist Securities, said in a report. Declining inventories also “should imply less markdown risk/pressure for the holiday selling season.”
The improved outlook bolstered confidence in Best Buy’s ability to navigate waning US demand for televisions, computers and appliances amid soaring inflation. The company has been paring jobs to cut costs as higher prices for basic goods have forced consumers to pull back on discretionary goods.
The retailer is also resuming its share repurchases, which analysts also took as a sign of confidence in the business.
The shares rose as much as 11% in New York trading, their biggest intraday gain since March 3. The stock had fallen 30% this year through Monday, compared with the 33% drop in an S&P index of consumer-discretionary companies.
Best Buy stopped short of issuing an improved outlook for the holiday season, leaving its expectations for the current quarter unchanged. It also struck a cautious tone on pricing, saying the promotional environment remains “considerably more intense” than last year, when retailers struggled to stock their stores amid supply-chain snarls.
Holiday Sales
“We are specifically planning for a holiday that we think is going to be promotional,” Chief Executive Officer Corie Barry said in a briefing with reporters. “Last year everyone was yelling that inventory would not be there.”
The company attributed the improved annual profit forecast to better-than-expected results in the third quarter as it made progress in controlling costs. Adjusted earnings fell to $1.38 a share in the fiscal third quarter, compared with the $1.05 average of analyst estimates compiled by Bloomberg. Sales slid 11% to $10.6 billion. Analysts had predicted $10.3 billion.
Comparable sales are now expected to fall only 10% this year, Best Buy said, slightly better than the previous forecast of an 11% decline.
The outlook “may leave room for the electronics retailer to surprise again in 4Q, as guidance suggests only a slight improvement in same-store sales declines despite easier year-over-year comparisons,” Bloomberg Intelligence analyst Lindsay Dutch said.
Best Buy incurred $26 million in restructuring charges during the quarter, mainly from employee-termination benefits connected to a streamlining program that began in the second quarter. Additional charges are expected the rest of the year, Best Buy said.
(Updates with analyst comment in third paragraph.)
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