Best Buy stock drops after Q3 outlook misses mark

Best Buy Co. Inc. (BBY) beat market estimates on revenues and profits for the second quarter of 2019 and raised its outlook for the full fiscal year. Despite the strong results, the company’s third quarter outlook came in short of expectations, leading to a drop of more than 5% in shares during premarket trade.

The electronics retailer posted enterprise revenues of $9.3 billion for Q2 2019, up from $8.9 billion in the same period last year. Enterprise comparable sales growth was 6.2%, with domestic comp sales improving 6% and international comp sales growing 7.6%.

Net income improved to $244 million or $0.86 per share compared to $209 million or $0.67 per share in the prior-year period. Adjusted diluted EPS grew 32% to $0.91.

Based on the strong performance during the first half of the year and revised expectations for the second half, Best Buy is raising its full-year sales and earnings guidance. For the full year of 2019, the company expects enterprise revenue of $42.3 billion to $42.7 billion. Enterprise comp sales are expected to grow 3.5% to 4.5% versus the prior outlook of flat to up 2%.

Full-year 2019 adjusted diluted EPS is expected to grow 12-15% to $4.95 to $5.10 versus the previous range of $4.80 to $5.00.

For the third quarter of 2019, Best Buy expects enterprise revenue of $9.4 billion to $9.5 billion. Enterprise comp sales are expected to grow 2.5% to 3.5% while adjusted diluted EPS is expected to grow 1-8% to $0.79 to $0.84.

Revenues increased both domestically and internationally, driven by comp sales growth. Domestic revenues were impacted by the closures of the Best Buy Mobile and large-format stores over the past year while the growth in comp sales was primarily driven by the computing, appliances and gaming categories. Domestic online revenues grew 10% fuelled by growth in conversion rates and traffic.

International revenue and comp sales growth benefited from new store openings in Mexico as well as positive impacts from Forex.

Earlier this month, Best Buy announced its plan to acquire GreatCall Inc. for $800 million. The deal, which is expected to close by the end of Q3 2019, is expected to be neutral to adjusted earnings in 2019 and 2020 and accretive by 2021.

The GreatCall deal is expected to help Best Buy reduce its dependency on electronic sales by shifting focus to the senior healthcare space.

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Related: Best Buy Q1 2019 Earnings Infographic