Best Buy's quarter came in below expectations, with misses exacerbated by downward revisions to management's forecasts for the remainder of the year. We were not surprised by Tuesday morning's edition and we have a plan. The company's revenue in the third quarter of fiscal 2025 fell 3.2% year over year to $9.45 billion, falling short of the $9.76 billion that analysts had expected, according to estimates compiled by LSEG. Adjusted earnings per share in the three months ended Nov. 2 fell 2.3% to $1.26, also lower. LSEG estimates called for EPS of $1.29. BBY YTD Mountain Best Buy YTD These were not the results we wanted from Best Buy, but they are the numbers we expected. That's why we recently took action to protect the hard-earned gains in this position. We shorted stocks in late October and last week in the high and mid 80s. Jim Cramer said it's too early to buy back those shares after the post-earnings shares fell nearly 6% on Tuesday. The Bottom Line While management has signaled that November is off to a good start, rising mortgage rates and uncertainty about rising tariffs under the administration of President-elect Donald Trump present headwinds that cannot be ignored. A lot of electronics is manufactured abroad. While we wait for clarity, we are trimming our price target to $100 per share from $110 while maintaining our rating of 2. Jim said Tuesday he would consider adding shares if they fall to the $70 level. Best Buy shares under $80 would push the dividend yield to just under 5% — a good sum for our patience. We still believe in the stock because Best Buy should benefit once mortgages decline and housing turnover rises. The high cost of purchasing a home has been a headwind for big-ticket items like appliances and home theater equipment. The increase we expect from sales of AI-enabled PCs and iPhone upgrades is also taking longer than expected. Best Buy Why we own: We believe Best Buy will prove to be a preferred destination for consumers looking to upgrade devices, many of which were purchased during Covid, to new AI-powered devices. We also see Best Buy as a beneficiary of the expected rise in housing formation. When people buy homes, they need to fill them with expensive items like appliances and home theaters. Competition: Target, Walmart, Amazon, Costco Last Purchased: July 2, 2024 Started: March 27, 2024 Comment Best Buy CEO Corey Barry attributed weak quarterly sales to a combination of macroeconomic uncertainty and delaying purchasing in anticipation of the holiday season – Why buy a TV in October when all the sales start in November, around the time of Black Friday — and what she called “a distraction during the run-up to the election.” However, Barry added that demand has picked up in the fourth quarter of Best Buy's 2025 fiscal year now that the presidential election is over and holiday sales are increasing. “Enterprise comparable sales during the first three weeks of November were up approximately 5% compared to last year,” she said on the post-earnings conference call. We are encouraged by the expansion we saw in gross margin in the fiscal third quarter, which was largely attributable to improved services, including memberships. However, adjusted operating margin contracted slightly as revenue declined while selling, general and administrative expenses remained roughly flat compared to the same period last year, on a dollar basis. However, we expect to see operating margin rebound, with sales picking up again and the company being able to make better use of its fixed costs. On the call, CFO Matthew Bellonas said adjusted operating income for the fourth quarter of fiscal 2025 should range between 4.6% to 4.8%, up from a rate of 3.7% in the reported quarter. While this would still be below the 5% rate seen in the fourth quarter of fiscal 2024, it's worth noting that the same period last year saw an additional week that management estimates added about $735 million to sales and added about 40 basis points to sales. Adjusted operating margin. So, taking that into account, we should see some year-over-year improvement in Q4FY2025 profitability, at the midpoint. Gross margin is also expected to see some expansion year-on-year. For the holidays, all is well, as Barry noted that the team chose to start Black Friday sales a week earlier than last year and brought back “Doorbusters,” with new deals every Friday between November 8 and December 20 and special offers. Deals for paid members. In the Best Buy app, the company also launched “Best Buy Gift Finder,” an AI-powered gift guide to help consumers find new products. Furthermore, we were pleased to hear how management is leaning into the experimental side of technology purchasing. It's no secret that online shopping is cutting into traditional retail. However, Best Buy is uniquely positioned to combat this by leveraging its physical locations, which give consumers the ability to interact with expensive technology in person and speak with a sales representative. “For example, customers can see XL TVs, which are larger than 97 inches, in more than 700 stores. They can also interact with Copilot+ PCs (from Club Microsoft), the new Aura Ring, and Ray-Ban AR glasses (powered by Club Microsoft). Club) Meta Platforms), gaming PCs, the latest Quest VR systems (again, Meta), new over-ear headphones, and much more,” said Barry, who also promoted in-store pickup for online purchases. Internet. Looking ahead, we believe management is taking appropriate action to ensure Best Buy remains a preferred destination for consumers looking for new technology by enhancing the experiential aspect of trying innovative products before purchasing. As a result, we believe the company is increasingly well positioned to benefit from the emergence of new products in the market and the return of online demand. Guidance Management has updated its financial forecasts for the remainder of fiscal 2025, trimming its forecasts for sales, profits and same-store sales. However, they reiterated their guidance on operating income. Revenue is now expected to be between $41.1 billion and $41.5 billion, down from the previous range of $41.3 billion to $41.9 billion, and below the estimate of $41.54 billion. Same-store sales are now expected to decline 3.5% to 2.5%, also below the previous range of 3% to 1.5%. This forecast is also weaker than the 2.1% decline that the Street was expecting. Adjusted operating margin was maintained, with the team continuing to target a range of 4.1% to 4.2%. This compares to estimates of up to 4.2% in print. Adjusted EPS is now expected to be between $6.10 and $6.25, representing a reduction to the high end of the range versus previous guidance of $6.10 to $6.35. This is below the estimate of $6.25, at the midpoint. (Jim Cramer's Charitable Trust is long BBY, MSFT, META. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you'll receive a trade alert before Jim takes a trade. 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Laptops inside a Best Buy store in Union City, California, US, on Friday, November 24, 2023.
David Paul Morris | Bloomberg | Getty Images
Best buyThe quarter came in below expectations, with errors exacerbated by downward revisions to management's forecasts for the remainder of the year.
We were not surprised by Tuesday morning's edition and we have a plan.
