Shares of consumer electronics retailer Best Buy (NYSE:BBY) tumbled on Tuesday despite an overwhelmingly positive second-quarter report. The company beat analyst estimates on all fronts, raised its guidance, and produced comparable sales growth well beyond expectations. The prospect of higher spending as Best Buy continues to invest in e-commerce may be giving investors pause. Best Buy stock was down 11% at 11:45 a.m. EDT.
Best Buy reported second-quarter revenue of $8.94 billion, up 4.8% year over year and $280 million higher than the average analyst estimate. Comparable sales grew by 5.4%, well above the 0.8% growth Best Buy reported during the same period last year. The company pointed to strong demand for technology products, strong execution of its strategy, and effective merchandising and marketing as the key drivers of this growth. Domestic online sales also surged, growing by 31.2% year over year, up from 23.7% growth during the prior-year period.
All of Best Buy's product categories produced comparable sales growth in the domestic segment. Consumer electronics sales rose 2.5%, computing and mobile phone sales rose 6.7%, entertainment sales rose 15.4%, appliance sales rose 5.8%, and services sales rose 1.5%.
Non-GAAP EPS came in at $0.69, up from $0.57 in the prior-year period and $0.06 better than analysts were expecting. The surge in revenue offset a slight drop in gross margin and a small increase in operating expenses, and the per-share numbers were helped by Best Buy's ongoing share buyback program.
Best Buy also boosted its full-year guidance to reflect its better-than-expected results. The company now expects to grow total revenue by 4% this year, up from a previous outlook of 2.5% growth. Non-GAAP operating income is now expected to grow by 4% to 9%, up from a previous range of 3.5% to 8.5%.
While there wasn't any real bad news in Best Buy's report, CFO Corie Barry took the wind out of the stock's sails by disclosing that the company planned to ramp up investments during the rest of the year. Best Buy's previous guidance already accounted for an increased level of investments, but the company has now decided to make additional investments during the third and fourth quarters.
These investments are likely related to e-commerce, and the prospect of higher costs may have spooked investors. Best Buy stock is still up about 30% year to date, but the company will need to show these additional investments paying off for the stock to regain its lost ground.