Today's stock market
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Anticipation regarding the outcome of Federal Reserve's meeting boosted financials today, and the SPDR S&P Bank ETF (NYSEMKT:KBE) rose 0.7%. The healthcare sector continued its recent weakness; the Health Care Select Sector SPDR ETF (NYSEMKT:XLV) lost 0.8%.
Two retail companies under attack from online competition saw their stocks come under pressure Tuesday. AutoZone (NYSE:AZO) shares fell following the company's earnings report, and Best Buy (NYSE:BBY) lost ground after holding an investor day.
AutoZone turns in a good quarter, but management makes downbeat comments
AutoZone announced earnings this morning that topped analyst estimates for revenue and profit, but still left investors concerned about future growth rates. The stock initially rose following the press release, but fell after the conference call, closing down 5%.
For the company's fiscal fourth quarter, sales were up 3.3% to $3.5 billion and adjusted earnings per share increased 6.1% to $15.18. Wall Street was looking for EPS of $15.11 on revenue of $3.49 billion. The closely watched metric of U.S. same-store sales showed a gain of 1%, reversing a decline of 0.8% reported last quarter. The company increased its store count by 1.9% and decreased weighted average share count by 4.8% year over year through buybacks.
The results cheered investors at first, but CEO Bill Rhodes dampened enthusiasm during the conference call when asked about future growth. AutoZone has been focusing on growing its commercial business to fuel sales gains, but commercial sales grew only 5.9% in the quarter. Rhodes pointed out that the company's five-year average same-store sales growth is 1.9%, but that figure included commercial sales growth in the low teens, which is not likely to happen again, and therefore the company would be "challenged" to return to its historical growth rate.
Best Buy fails to inspire
Best Buy held its first investor day in five years to tout opportunities the company sees in its future, but ended up making investors gloomier about its prospects, and shares fell 8%.
The company outlined a strategy for expanding what it sells and evolving how it sells. Examples of sales expansion cited included growing "smart home" offerings, a service to help adult children check in on the health and safety of elderly parents, and a new Geek Squad offering to provide support for a customer's technology regardless of where it was bought. Best Buy also predicted a compound annual growth rate in EPS of 8% to 9% through fiscal 2021.
"Building on what we have accomplished, we are excited by the opportunities we have in this next chapter to grow the company by helping customers pursue their passions and enrich their lives with the help of technology, which is a much bigger idea and one that is rich with opportunities," said Chairman CEO Hubert Joly in the press release.
An investor community that is already spooked by the threat from Amazon was unimpressed. Yet for all of the anxiety about the future, Best Buy has proven to be adept at fending off the online giant. The company turned in remarkable growth numbers in the most recent quarter, at the same time pointing to this very investor day as an opportunity to expand on its growth strategy. The online threat is nothing new, after all, so if Best Buy management can't sell its vision for the future very well, perhaps the story of its execution in recent years would be more persuasive to investors looking for a reasonable long-term bet.