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Best Buy Benefiting from Growing Demand for Technology
Stock Analysis & Ideas

Best Buy Benefiting from Growing Demand for Technology

Big-box retailer Best Buy Co., Inc. (BBY) is benefiting from a growing demand for technology, as evidenced by a string of strong earnings reports.

I am bullish on the stock. (See BBY stock charts on TipRanks)

Another Winning Quarter

On Tuesday, the company reported Q2 financial results for Fiscal Year 2022 that beat analyst expectations. Guidance was also raised for the rest of the year.

Earnings per share rose 75.8% to $2.90. In addition, comparable sales rose 20%, and are expected to grow in the range of 9% to 11% for the entire year.

These results come on the heels of another solid financial report back in May, when the company reported a 37.2% bump in comparable year-over-year sales, and a 280% jump in EPS.  

“We are lapping an unusual quarter last year as our stores were limited to curbside service or in-store appointments for roughly half the quarter,” said Corie Barry, CEO of Best Buy. “When we compare to two years ago, our results are also very strong. Compared to the second quarter of FY20, revenue is up 24%, and our operating income has more than doubled.”

“Customer demand for technology products and services during the quarter remained very strong,” he added.

Best Buy’s solid results must have caught some analysts by surprise. The 16 Wall Street analysts following the stock rate it a Moderate Buy, with 10 Buy and seven Hold ratings. The average BBY price target of $134.31 implies 11% upside, with a high forecast of $157 and a low forecast of $100.

Wall Street Liked What it Saw

Still, Wall Street liked what it saw in Best Buy’s report. The stock price rose sharply following the Q2 results, and now sits at around $120 per share.

Best Buy’s solid performance in recent quarters confirms a remarkable recovery from a decade ago, when the company was fighting for survival.

That’s when the arrival of Amazon (AMZN) into electronics retailing turned Best Buy’s most essential advantages (location and scale) into a significant disadvantage.

Customers would go to Best Buy’s stores to window shop, and then log on to Amazon’s site to do their actual shopping. That’s where they could get better deals, as Amazon didn’t have the high overhead costs that plagued Best Buy.

As a result, Best Buy suffered significant losses, with business experts and Wall Street analysts predicting the decline and fall of the iconic retailer.

The Strategy Behind Best Buy’s Turnaround

What’s behind Best Buy’s remarkable turnaround? “Renew Blue,” a shrewd strategy launched eight years ago to help Best Buy make the most of its precious assets.

The strategy involves the merging of online and offline sales, by using stores as warehouses and pick-up places to speed up online order delivery.

As well, Best Buy expanded the scope of its operations, and added more products to its stores to address emerging consumer electronics trends like health technology solutions, home theaters, and computing.

Then there’s the development of the “stores within stores” concept, whereby major technology companies like Microsoft (MSFT) and Samsung (SMSN) set up their own stores inside Best Buy locations. That helped the retail giant shift the cost of showrooming to these companies.

Lastly, there’s the effective deployment of the Geek Squad, helping the company bundle the sale of electronics devices with services, something Amazon is missing.

Summary and Conclusions

This week, Best Buy reported another strong quarter, capitalizing on the strong demand for technology products, and a new retailing trend of merging online and offline sales.

That’s thanks to an innovative strategy that leveraged its core assets as well as its expertise.

Disclosure: On the date of publication, Panos Mourdoukoutas had no position in any of the companies discussed in this article.

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