Please ensure Javascript is enabled for purposes of website accessibility

Best Buy Q2 Earnings: 3 Takeaways

By Demitri Kalogeropoulos – Aug 27, 2021 at 8:21AM

Key Points

  • Consumers are eager to upgrade their tech now, Best Buy management told investors.
  • The chain credits its multichannel sales platform and its tech support offerings for its market share gains.
  • The coming holiday season could be one for the record books.

Motley Fool Issues Rare “All In” Buy Alert

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

The sales trends supported another big upgrade to the retailer's fiscal year outlook.

Investors had high expectations heading into Best Buy's (BBY -1.41%) fiscal 2022 second-quarter earnings report. They weren't disappointed.

The retailer on Tuesday morning revealed that demand was strong through July as consumers spent freely on products that helped them be more productive and entertained at home. Customer traffic gains convinced management to issue a second straight dramatic upgrade to their annual outlook, despite mounting risks to the business related to inflation and the coronavirus.

A couple shopping for appliances.

Image source: Getty Images.

Sales beat expectations

For the quarter that ended July 31, Best Buy beat the forecast that management issued three months ago. Instead of sales rising 17% overall, they grew by 20%.

Admittedly, much of that gain came because this period is being measured against an unusually weak year-ago period when many of the chain's stores were operating at limited capacity. But Best Buy is still catering to far more customers today than it was two years ago. Revenue is up 24% compared to the second quarter of its fiscal 2020 (which was in calendar 2019).

"Customer demand for technology products and services during the quarter remained very strong," CEO Corie Barry said in a press release. Management credited the chain's popular multichannel sales platform, plus a generally strong economic environment supported by rising incomes, financial stimulus, and cash savings.

Higher prices

Margins continued climbing as the chain passed along higher prices to consumers even as demand tilted further toward more premium home theater and computing products. The company's relatively young appliance business was a big contributor, too.

Overall, operating income hit $797 million, or 6.7% of sales, compared to $568 million, or 5.7% of sales, a year earlier. Margins were up to 7% of sales through the first half of the year -- double the rate that the company was achieving back in 2019 before the pandemic struck.

BBY Operating Margin (TTM) Chart

BBY Operating Margin (TTM) data by YCharts

"We now serve a much larger installed base of consumer electronics," Barry explained, "with customers who have an elevated appetite to upgrade." The chain's convenient fulfillment options, plus comprehensive tech support, make it particularly appealing to today's shoppers, even in a crowded tech retailing industry.

Looking out to 2022

In connection with the report, Best Buy management issued a second straight major upgrade to its outlook. Sales are now expected to grow by between 9% to 11% for the fiscal year instead of the 3% to 6% range management issued three months ago. Heading into the fiscal year, that forecast was for flat revenue compared to last year's 10% spike. Now, Best Buy has a good shot at a second consecutive fiscal year of double-digit percentage comps gains.

The supply chain is still facing pressure due to higher expenses, especially in labor and the supply chain. However, those headwinds are being fully offset by the strong demand trends in niches like appliances.

Investors will have a much better read on how the full year will play out following the company's fiscal third-quarter earnings report, which will include a detailed outlook for the holiday shopping season.

But in the meantime, it's looking like another banner year for the retailer, with earnings soaring thanks to robust demand and improving profit margins.

Demitri Kalogeropoulos 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 Stock Quote
Best Buy
$81.23 (-1.41%) $-1.16

*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 11/26/2022.

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.