Best Buy (BBY) crushed expectations when it reported first-quarter results. The electronics retailer generated revenue of $8.5 billion on earnings of $0.60 per share. Analysts expected earnings that were $0.20 a share lower.
Best Buy’s revenue grew 0.7% Y/Y, setting a short-squeeze for the stock on the market. Short float is 13.65%. Bears had bet that BBY would lose market share to online retailers like Amazon.com (AMZN). The strong quarter is good news for GameStop (GME), whose business depends on strong demand for electronic goods.
BBY’s gross margin improved by 60 bp, to 23.6% in the U.S. Consumers bought more profitable items, including televisions home theatres and appliances. The company forecast earnings of $0.57 - $0.62 per share. Management is probably expecting Samsung’s S8 and S8+ will bring in more customers. If Apple releases a 10-year anniversary iPhone 8, that would benefit Best Buy in the quarters ahead.
Best Buy’s CFO, Corie Barry said:
“Our second quarter guidance reflects the continuation of much of the positive category momentum we saw in the first quarter, as well as the increased level of growth investments included in our initial annual guidance.”
Takeaway
At a P/E of 13.5 times, Best Buy is still undervalued. The retailer is outperforming the weak sector but as customers allocate their disposable funds for electronic goods instead of furniture or clothing, expect more upside for BBY stock.
