Best Buy Beats the Street but Shares Drop

Best Buy saw its shares fall Tuesday even though the giant electronics retailer posted sales and earnings for its second quarter that beat Wall Street expectations.

The company increased its profit outlook for the full year, building on a strong performance during the first half of 2018.

Nevertheless, the stock for the retailer fell over 6% in early Tuesday trading, as the third quarter outlook for Best Buy was far lower than estimates on Wall Street. Best Buy announced that it expected earnings to be 79 cents to 89 cents per share, well below analyst’s projections of 92 cents.

For the second quarter, Best Buy’s earnings per share were 91 cents while analysts were expecting 83 cents. Revenue reached $9.38 billion while analysts were expecting $9.28 billion. Sales at same-stores increased 6.2% while analysts were expecting an increase of 3.7%.

Net income ended the quarter at $244 million equal to 86 cents a share in comparison to $209 million equal to 67 cents a share for the same period one year ago. Excluding one-off items, Best Buy earnings were 91 cents beating the forecast of analysts by a full 8 cents per share.

Best Buy’s previously mentioned revenue of $9.38 billion represented an increase of 5%. Domestic sales at same-stores grew by 6% and while internationally the increase was 10.1%.

Best Buy CEO Hubert Joly said the growth in sales was boosted by a healthier U.S. economy with more consumer confidence and less unemployment, which puts more money in the pockets of shoppers leading up to the holiday shopping season of 2018.

Best Buy said same-store sales for the full year would climb as high as 4.5%, in comparison to its prior estimate of 2% growth. The company’s earnings per share will range between $4.95 and $5.10, said the electronics retailer on Tuesday, in comparison to a prior outlook of between $4.80 and $5.00 per share.

The company added that its operating margins will decline during the third quarter as its increases investments, including those that back the national launch of its tech support platform.

High cost of supply chain and higher expenses in transportation will pressure the gross profit rate of Best Buy, said its CFO Corie Barry during an earnings call.

Both Target and Walmart both cited similarly high fuel costs as eating into their profit margins.

Best Buy announced this month its plans to acquire GreatCall a health services provider for $800 million.