Best Buy Shares Surge 8% Despite Mixed Outlook

Electronics retailer Best Buy Co Inc (NYSE:BBY) early Thursday posted much better than expected third quarter earnings results, and shares exploded higher despite a tepid Q4 outlook for the all-important holiday season.

The Richfield, MN-based company reported Q3 EPS of $0.62, which blew away analyst expectations of just $0.47. Revenues rose 1.4% from last year to $8.95 billion, also easily topping Wall Street’s $8.85 billion estimate.

Third quarter comparable sales rose 1.8%. That total was much better than Best Buy’s guidance of 1%. Comparable store sales, also known as same-store sales or simply “comps,” are perhaps the most important measure of a brick-and-mortar retailer’s performance, since they only measure sales generated from locations open at least 12 months.

BBY said that strong comparable sales growth in home theater, mobile phones, wearables and connected home segments were strong, while gaming comps saw significant declines.

Meanwhile, domestic online revenue surged 24.1% to $881 million in the latest period, helped mainly by higher traffic, rising average order values, and increasing conversion rates. Best Buy said that online revenue in the latest period represented 10.8% of the company’s total sales, up from 8.8% in the same quarter last year.

BBY’s domestic GAAP and non-GAAP gross profit rate was 24.7% versus 24.1% last year, helped by better margins in the computing and home theater categories, but partially offset by weakness in the mobile category.

Looking ahead, Best Buy forecast mixed fourth quarter results. The company expects Q4 EPS $1.62-1.67, which would beat analysts’ view of $1.58. Its outlook for Q4 revenue ranging from $13.4-13.6 billion would miss Wall Street’s $13.7 billion estimate, however.

Best Buy expects Q4 comparable sales to range from -1.0% to +1.0%, which is significantly worse than analyst expectations of +1.2%.

The company commented via press release:

“From a revenue standpoint, we are excited by the rate of technology innovation, the quality of our assortment and our ability to execute. That being said, we have updated our original expectations to incorporate the impact of recent product recalls and the fact that certain products will simply not be available for sale during our fourth quarter. The expected impact of these recalls on our fourth quarter Domestic revenue is ~$200 million.”

Investors clearly weren’t concerned about Best Buy’s mixed outlook, with shares rising $3.08 (+7.61%) to $43.53 in premarket trading Thursday. Prior to today’s report, BBY had already surged 32.84% year-to-date.