Best Buy (NYSE:BBY) shares are looking good after the company reported a strong third quarter. The tech and electronics retailer seems primed for the holiday season with promising prospects in its home market. Overseas, there is still some work to be done. I would also caution that while results were encouraging, overall comparable-sales growth was not nearly as strong as a year ago.

The third quarter

The third quarter included solid top-line and comps growth, plus an expansion of the increasingly important digital business.

  • Domestic revenue grew 2.4% year over year, with comparable sales growth of 2.0%. The company noted that lost revenue from store closures ate into some of the gains from the GreatCall acquisition.
  • Overall, domestic comps growth was powered by appliances, headphones, computing, tablets, etc., while home theater and gaming experienced declines.
  • Online comparable sales jumped 15.0% domestically and represented 15.6% of the company's top line for that region, compared to 13.8% a year ago.
  • Gross margin was flat at 24.3% compared to 24.4% in the prior-year period.
  • The international segment's results were not as compelling, with revenue down 4.1% due to comps falling 1.9% and negative currency exchange rates. International gross margin did improve 30 basis points to 22.5%.
  • In all, enterprise comparable sales increased 1.7%.
  • The bottom line here was good, as GAAP diluted earnings per share increased 11.1% to $1.10. Non-GAAP earnings increased 21.5% to $1.13 per share.

I am encouraged by all indicators here except the contrast in comparable sales growth between fiscal 2020 and fiscal 2019, as the latest quarter saw the metric decline by more than half from last year.

boxes of electronics

Image Source: Getty Images.

Management's outlook

The good earnings led to Best Buy adjusting its guidance for the full year. 

  • Management raised the bottom of its revenue range from $43.1 billion to $43.2 billion, while the top of the range held steady at $43.6 billion. Obviously this isn't a huge deviation from previous expectations, but it does show the retailer is feeling a little more confident.
  • Enterprise comp sales are expected to grow 1.0% to 2.0%, up from the previously anticipated range of 0.7% to 1.7%.
  • Non-GAAP earnings per diluted share are expected to be in the range of $5.81 to $5.91. This was a significant step up from management's prior outlook of $5.60 to $5.75 per share.
  • For the fourth quarter, Best Buy is anticipating enterprise revenues of $14.75 billion to $15.15 billion, with comps growth of 0.5% to 3.0%.
  • Adjusted earnings per share should come in between $2.65 and $2.75 -- this is right in the range of last year's fiscal fourth-quarter result of $2.72 per share.

The stock

Best Buy definitely seems ready for the holidays, and the revised full-year guidance is encouraging. Shares surged nearly 10% after the earnings release. The stock had previously given up ground after the second quarter delivered less inspiring results.

Overall, Best Buy has outperformed the S&P 500 over the last several years, defying the naysayers as a once "doomed" brick-and-mortar retailer. But whether it's a top pick for your portfolio is up for debate. While shares of Best Buy are perched near all-time highs, it's difficult to say that this one should be chased. I view the stock as a strong hold.