Please ensure Javascript is enabled for purposes of website accessibility

Why Best Buy Stock Just Sold Off by 4%

By Rich Smith – May 21, 2020 at 2:53PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This isn't how "earnings beats" usually work.

What happened

Shares of big box electronics retailer Best Buy (BBY 3.10%) sold off by nearly 6% in early trading Thursday, after reporting Q1 2021 earnings, before climbing back to about a 3.8% loss as of 2:35 p.m. EDT. Curiously, though, Best Buy's earnings were better than expected, not worse.

Heading into earnings, analysts had predicted Best Buy would earn $0.60 per share on sales of $8.35 billion. In actual fact, the company earned $0.67 per share (pro forma) on sales of $8.56 billion.  

Cartoon characters confused by stock chart arrow falling and crashing into floor.

Image source: Getty Images

So what

So why the sell-off? That's not too hard to guess.

Although Best Buy "beat" on sales and earnings in Q1, the quarter was far from an unalloyed success. Sales sank 6% year over year. As for profits, not only were actual generally accepted accounting principles (GAAP) earnings only $0.61 (and thus less than the $0.67 pro forma profit), but those profits actually shrank by 38% year over year.

Granted, COVID-19 was to blame for the decline in sales and earnings. Although Best Buy did its best to shift its business model to accommodate social distancing guidelines, introducing a "curbside-only operating model" and emphasizing sales over the internet (which grew 155% year over year in the U.S.), the final six weeks of Q1 saw a 19% decline in sales over the equivalent period from fiscal 2020.

CEO Corie Barry hailed this result as "strong sales retention" in the face of a pandemic, and I won't argue with that. Still, sales declined, and profits did, too. Whoever's to blame for that, it means Best Buy became a less valuable business as a result.

Now what

And Best Buy may remain less valuable for some time to come. Although the company has resumed "large product delivery, in-home installations and repairs in approximately 80% of U.S. ZIP codes" and reopened its stores (partially) for in-store shopping on May 4, it's not clear this will be enough to get sales growing again in Q2. Accordingly, Best Buy has "suspended all FY21 financial guidance on March 21 and are [sic] not providing guidance today."

Despite its best efforts, management says its sales in Q2 will "be pressured" just as they were in Q1, and the company still faces "a high level of uncertainty" about its future results. Judging from today's price action, investors are suffering more than a little "uncertainty" about Best Buy stock, too.  

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
$67.44 (3.10%) $2.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.