Despite posting positive numbers during the second quarter, shares of Best Buy (NYSE:BBY) are down double digits. It has been a great run for investors the last year, but the company warned that the good times may not last.
The quarter by the numbers
Total revenue increased 4.8% year over year to $8.94 billion. Earnings per share were up 9.8% as a result, also getting a boost from the company's share repurchase program. Year to date, revenue is up 2.9% and earnings down 3.1% compared with the prior year period.
Those solid three months for Best Buy came at a time when the electronics and appliance store industry continues to struggle. According to the U.S. Census Bureau, total industry sales are down 1.3% in 2017, compared with a total retail industry sales increase of 4%.
The big headline number, though, was same-store sales -- a measurement that combines average customer ticket size and foot traffic. Best Buy reported a 5.4% increase in that metric in the second quarter, easily besting last year's paltry 0.8%. With all of the good news the company had for investors, what gives with the stock performance?
An alarmist sours the mood
Prepared comments from Best Buy's CEO Hubert Joly were what sent share prices into a tizzy. In referring to the impressive same-store sales figures, Joly had this to say:
While we do not believe that mid-single digit comps are a new normal, we're excited about our opportunities going forward and the strategy we're pursuing. We look forward to providing more details on that strategy during our upcoming Investor Day.
Shareholders never want the whistle blown on progress their companies are making, especially not from the CEO. But on the other hand, investors can also choose to be thankful that Joly is bringing expectations back to reality rather than feeding the belief that this blockbuster quarter could easily be repeated.
That is fair, especially considering that some of Best Buy's recent success could be attributed to the demise of some competition. Electronics retailer hhgregg filed for bankruptcy earlier this year, and other contenders like Sears continue to shutter locations. Some of the displaced foot traffic is inevitably ending up at Best Buy instead.
However, it's worth noting that Best Buy management thinks the next quarter will be good too. New mobile devices are getting launched this fall, and many expect that video game sales will be solid this year with new platforms like the new Nintendo Switch and some high-profile game titles slated for release. As a result, the company sees another quarter of same-store sales growth in the 4.5% to 5.5% range.
As for more details on the long-term outlook, the investor day that Joly referred to is scheduled for Sept. 19.
What's next for investors?
Despite the recent decline, shares are still up over 25% in 2017. With that kind of run, it isn't out of the ordinary for the stock to take a breather.
However, this situation could play like it did for Dick's Sporting Goods last year. That retailer also got a big boost from several competitors throwing in the towel, followed by a bust as business results normalized once again.
It is premature to make that call though, especially with management predicting a possible repeat of the recent success during the current quarter.