Best Buy shares spike amid upbeat Q3 print

The news shaping the markets today

The Russian-controlled Crimean peninsula in Ukraine suffered a drone attack. Despite the continued geopolitical tensions, the safe-have US dollar index traded slightly lower this morning.

Singapore’s GDP expanded by 4.1% year-over-year in the third quarter, versus the flash reading of 4.4%. The latest reading also missed market expectations of 4.3%, exerting pressure on the SGD/USD forex pair.

The Reserve Bank of New Zealand raised its official cash rate by 75bps to 4.25% at its November meeting to a level not seen since January 2009, which sent the NZD/USD pair higher in forex trading this morning.

Australia’s S&P Global flash manufacturing PMI fell to 51.5 in November, compared to a final reading of 52.7 in the previous month, which exerted some pressure on the AUD/USD forex pair.

South Korea’s Business Survey Index on business conditions in the manufacturing sector rose 2 points from the earlier month to 74 in November, sending the KRW/USD pair higher in forex trading this morning.

What’s happening: Shares of Best Buy surged on Tuesday after the company announced results for its third quarter.

What happened: Although the consumer-electronics retailer reported better-than-expected results, its sales and earnings declined for the fourth quarter in a row on a year-over-year basis.

Shares of Best Buy surged the most in over two years after a modest improvement in the company’s profit outlook.

How were the results: The Richfield, Minnesota-based company reported a double-digit decline in revenues for its fiscal third quarter, but both top- and bottom-line metrics topped market views.

• Sales declined by 11.1% year-over-year to $10.59 billion, surpassing the consensus estimates of $10.31 billion.
• Non-GAAP earnings fell to $1.38 per share, which exceeded Street expectations of $1.03 per share.

Why it matters: Surging inflation in the US has negatively impacted overall demand for non-essential goods. This forced retailers like Best Buy to offer discounts and promotions to clear inventories, including laptops, TVs, and other electronic products.

Best Buy’s domestic revenues contracted by 10.8% from a year ago, while international revenues declined 14.9%. Enterprise comparable sales also fell 10.4%. Gross profits contracted 16.8% year-over-year to $2.3 billion, while margins shrank 150 basis points to 22% last quarter.

The company’s board authorised the payment of regular quarterly cash dividend of 88 cents per share. The company also said it had resumed share buybacks during November after pausing the same in the second quarter, while projecting to spend around $1 billion in share repurchases in the year.

“Throughout the quarter, we were committed to balancing our near-term response to current conditions and managing well what is in our control, while also advancing our strategic initiatives and investing in areas important for our long-term growth,” CEO Corie Barry said during the earnings call.

Management guided to a decline of about 10% in comparable sales for fiscal 2023, compared to the earlier forecast for an 11% decline. They also expect adjusted operating margins to be slightly higher than 4%, better than the previous guidance of approximately 4%.

How shares responded: Best Buy’s shares surged 12.8%, recording their strongest intraday gain since April 2020, to settle at $79.88 on Tuesday. The stock has added about 25% over the past month.

What to watch: Investors will keep an eye on the sales on Black Friday, Cyber Monday and during the Christmas week. However, retailers are expected to offer heavier discounts during the shopping season, which could hurt overall profit margins.

The markets today

Crude oil will be in focus today ahead of the EIA’s (Energy Information Administration) data on stockpiles

Context: Oil prices moved higher on Tuesday after Saudi Arabia denied talks to increase output.

Details: Crude oil prices rebounded sharply on Tuesday on prospects of the OPEC’s (Organization of the Petroleum Exporting Countries) intervention in the oil markets, which offset concerns of deteriorating demand for the commodity.

Saudi Energy Minister Prince Abdulaziz bin Salman said OPEC+ (OPEC and its allies) would stick with its planned production cuts and signalled a further reduction in output to provide a balance between demand and supply.

The OPEC’s de-facto leader, Saudia Arabia, also denied a Wall Street Journal report which said that the cartel was considering increasing output, which had sent crude oil prices lower by more than 5% at one point on Monday.

However, the upside in oil prices on Tuesday was limited due to concerns over oil demand following aggressive rate hikes by the US Federal Reserve and strict covid-19 restrictions in China.

WTI crude oil for January delivery gained 91 cents to close at $80.95 per barrel on Tuesday, while Brent crude for January delivery added 91 cents to $88.36 per barrel.

In other energy trading, wholesale gasoline for December delivery gained 10 cents to $2.54 a gallon, while December natural gas came in unchanged at $6.78 per 1,000 cubic feet.

What are expectations: Traders await data on crude oil inventories from the EIA today. US crude oil inventories, which shrank by 5.4 million barrels in the week ended November 11, are expected to decline by 1.055 million barrels in the recent week. Stockpiles of gasoline are expected to increase by 0.383 million barrels, while distillate inventories are projected to decline by 0.55 million barrels during the week.

Markets also await the EIA’s report on natural gas stockpiles and Baker Hughes crude oil rigs data, as both reports will be released before the scheduled weekly release due to the Thanksgiving holiday.

The OPEC+ meeting, scheduled to be held on December 4, will also remain in focus.

Other Markets: European trading indices closed higher on Tuesday, with the FTSE 100, DAX 40, CAC 40 and Stoxx Europe 600 up by 1.03%, 0.29%, 0.35% and 0.73%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

South Africa’s inflation rate, France’s services PMI, manufacturing PMI and composite PMI, Germany’s services PMI, manufacturing PMI and composite PMI, Eurozone’s services PMI, manufacturing PMI and composite PMI, UK’s services PMI, manufacturing PMI and composite PMI, US MBA mortgage applications, building permits, durable goods orders, initial jobless claims, continuing jobless claims, continuing jobless claims, services PMI, manufacturing PMI, composite PMI, new home sales and University of Michigan consumer sentiment, Russia’s industrial production and producer price inflation, as well as Argentina’s economic activity estimator.