Best Buy Stock Spikes Despite Sales Shortfall

The news shaping the markets today

Russian military seized Ukraine’s Zaporizhzhia nuclear power plant and continued heavy shelling in Mariupol. The news sent WTI crude close to $109 per barrel and Brent crude over $111 per barrel this morning.

The Philippines reported an unchanged annual inflation rate of 3.0% for February. However, the PHP/USD forex pair remained under pressure after the news.

Australia’s retail sales rose by 1.8% in January, following a 4.4% decline in the previous month. Despite this, the AUD/USD pair declined in forex trading this morning.

Japan’s unemployment rate rose to 2.8% in January, from 2.7% in the previous month. The JPY/USD forex pair remained mostly flat.

S&P lowered Russia’s rating from “BB+” to “CCC-” amid new international sanctions on the country. However, the RUB/USD forex pair traded flat this morning.

What’s happening: Shares of Best Buy Company gained on Thursday, despite the company reporting weaker-than-expected revenues for its fourth quarter.

What happened: The top US electronics retailer also issued a downbeat forecast for the full year amid product shortages.

Management expressed optimism, however, around Best Buy’s long-term prospects, which supported investor sentiment.

How were the results: The consumer electronics leader reported a decline in revenues for the fourth quarter, with the figure missing market views.

• Sales declined by 3.4% year-over-year to $16.36 billion, missing the Street expectations of $16.59 billion.
• Adjusted earnings contracted more than 21% to $2.73 per share but came in-line with the consensus estimate.

Why it matters: Best Buy’s performance during the final months of 2021 was severely impacted by product shortages, including mobile phones and gaming consoles, amid global supply chain issues. A sharp rise in transportation costs also dented profit margins in the quarter.

“Q4 sales of $16.4 billion were impacted by more constrained inventory than expected, including some high-demand holiday items, and the temporary reduction in store hours in January due to Omicron-induced staffing challenges,” CEO Corie Barry said in a statement.

Best Buy’s comparable sales fell 2.3% in the quarter, versus expectations of a 0.2% decline. An increase in investments also impacted the company’s profitability, resulting in its adjusted operating margin shrinking to 5.1%, from 6.9% in the year-ago quarter. Management said, however, that these investments would bear positive results for the company over the long term.

Capital expenditure is expected to range between $1 billion and $1.2 billion over the next three years, versus less than $750 million in the previous three years.

In view of these planned investments, Best Buy projected its fiscal 2023 adjusted earnings between $8.85 and $9.15 per share, short of analyst expectations of $9.29 per share. Management also guided to revenues between $49.3 billion and $50.8 billion for the year, missing the consensus estimate of $50.89 billion.

However, the company upgraded its long-term projections due to the investments in its membership program and health-related services. Management guided to adjusted operating profits growing as must as 6.8% by fiscal 2025 on revenues of as high as $56.5 billion. The long-term forecast exceeded the company’s pre-pandemic guidance and Street expectations.

Best Buy also announced a hike in its quarterly cash dividend by 26% to 88 cents per share. The company’s board also authorised a share repurchase program worth $5 billion.

How shares responded: Best Buy’s shares climbed 9.2% to close at $110.14 on Thursday, following the release of quarterly results. The stock, however, fell 1.5% in after-hours trading.

What to watch: Investors will continue monitoring Best Buy’s investments and any updates on the global supply chain disruptions, which have worsened by the Ukraine invasion.

The markets today

The US dollar will be in focus today ahead of the all-important jobs report from the country

Context: The US dollar gained against the euro on Thursday, following comments from Federal Reserve Chairman Jerome Powell.

Details: During his second day of testimony before the Congress, Powell said he supports an interest rate hike of 25 basis points this month.

The greenback also received support from the release of weekly US jobless claim data, which signalled that the country’s labour market was gaining steam. The number of Americans filing new claims for jobless benefits fell to the lowest level this year, with the weekly jobless claims declining by 18,000 to 215,000 in the week ended February 26.

Investors also chose safe-haven options on news of a fire at a nuclear power plant in Ukraine following an attack by Russian troops. Ukrainian authorities confirmed later that the Zaporizhzhia nuclear power plant had been secured.

The US dollar index, which measures the greenback’s performance versus a basket of major currencies, settled at 97.79 on Thursday.

The EUR/USD forex pair fell to 1.1060 on Thursday. The euro is on track to recording its fourth consecutive weekly decline versus the greenback. However, the USD/JPY pair slipped to 115.43.

What to watch: Traders await payrolls data from the US today. The US economy, which unexpectedly added 467,000 jobs in January, is expected to report 400,000 job adds in February. The US unemployment rate is projected to decline to 3.9% in February, from 4.0% in January.

Other Markets: European trading indices closed lower on Thursday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 2.57%, 2.16%, 1.84% and 2.01%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Germany’s balance of trade, current account and construction PMI, France’s industrial production, retail sales and construction PMI, Brazil’s IPC-Fipe inflation and GDP growth rate, Eurozone’s construction PMI and retail sales, Italy’s construction PMI and gross domestic product, UK’s new car registrations and construction PMI, Russia’s total vehicle sales, India’s foreign exchange reserves, Mexico’s car production, auto exports and gross fixed investment, Canada’s value of building permits, labour productivity and Ivey Purchasing Managers Index, US Baker Hughes crude oil rigs and total vehicle sales, as well as Spain’s consumer confidence indicator.