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Best Buy’s shares gain despite lower Q2 earnings

 

Wednesday, August 31, 2022

The news shaping the markets today

Ukraine’s President Volodymyr Zelenskyy said that Russian forces were attacking the area near the Zaporizhzhia nuclear power plant due to being visited by UN inspectors. Continued tensions around the Russia-Ukraine situation sent WTI crude futures higher.


Australia’s private sector credit rose 0.7% in July, versus a 0.9% increase in June, lending support to the AUD/USD forex pair.


China’s official NBS manufacturing PMI climbed to 49.4 in August, from 49.0 in the prior month. The latest reading also topped market estimates of 49.2, which sent the CNY/USD pair higher in forex trading this morning.


Japan’s industrial production unexpectedly increased by 1.0% in July, exceeding market expectations of a 0.5% decline. The news lent support to the JPY/USD forex pair.


New Zealand’s ANZ Business Outlook Index rose to -47.8 in August, from -56.7 in the earlier month. This being the strongest reading since April sent the NZD/USD pair higher in forex trading this morning.

 

What’s happening: Shares of Best Buy Co gained on Tuesday, after the company reported better-than-expected results for its second quarter.

What happened: Investors had been concerned after Best Buy issued a warning last month about a meaningful decline in customer demand for electronics.

The latest results were, however, not as bad as feared, which lent support to the stock.

How were the results: The Richfield, Minnesota-based company reported a sharp decline in earnings for the second quarter, but the latest figure still exceeded market projections.

  • Sales contracted by 12.8% year-over-year to $10.33 billion, surpassing the consensus estimate of $10.24 billion.
  • Net income came in at $306 million, or $1.35 per share, down sharply from $734 million, or $2.90 per share, in the year-ago quarter.
  • Non-GAAP earnings declined to $1.54 per share, from $2.98 per share in the same quarter last year, but topped Street expectations of $1.27 per share.

Why it matters: Investors had been bracing for bad news from Best Buy, after the company announced plans last month to reduce in-store jobs amid a decline in electronics demand.

Best Buy’s domestic revenues fell 13.1% year-over-year, while international revenues declined 9.3%. Enterprise comparable sales contracted by 12.1%, with expectations of a 13.1% decline.

The company’s gross profits fell 18.6% from a year ago to $2.3 billion, with margins shrinking 160 basis points to 22.1% during the quarter.

“We are focused on balancing our near-term response to difficult conditions and managing well what is in our control, while also delivering on our strategic initiatives and what will be important for our long-term growth,” CEO Corie Barry said during the earnings call.

The company incurred restructuring costs worth $34 million in the second quarter, mostly related to termination benefits and projected additional expenses through the remainder of fiscal 2023.

The board authorised regular quarterly cash dividends of 88 cents per share. Management said third-quarter comparable sales could decline slightly more than the second quarter’s 12.1% decline while projecting a decline of around 11% for the year. The company reiterated its full-year profit and sales projections.

How shares responded: Best Buy’s shares gained 1.6% to close at $74.89 on Tuesday, following the release of quarterly results. The stock has lost around 27% year to date.

What to watch: Traders will continue to monitor inflation levels, as a further rise in prices could exert more pressure on consumer discretionary spending.

The markets today

European stocks will be in focus today ahead of some major economic reports

Context: European markets settled mostly lower on Tuesday, after recording gains earlier in the session.

Details: Sentiment was supported in early trading on Tuesday by economic data from the Eurozone. The bloc’s consumer confidence improved to -24.9 in August, from a record low of -27 a month ago.

However, investors grew concerned after ECB policymaker Madis Muller’s hawkish comments. Muller said the central bank should discuss an interest rate increase of 75 basis points at its September meeting to combat surging inflation.

The ECB had hiked interest rates by 50 basis points at its policy meeting in July and is widely expected to announce a similar move at its upcoming meeting in September.

During his annual policy speech at Jackson Hole, Federal Reserve Chairman Jerome Powell also took a hawkish stance, saying the US needs monetary policy tightening till inflation is brought to the 2% target.

The pan-European Stoxx 600 fell 0.67% to close at 419.81 on Tuesday, after gaining around 0.8% earlier in the session. Shares of basic resources were among the worst performers, declining by around 3% in the session.

Germany’s annual inflation rate accelerated to 7.9% in August, coming in above market expectations of 7.8%. However, the DAX 40 gained 0.53% to reach 12,961.14. France’s CAC 40 lost 0.19% on Tuesday.

London’s FTSE 100 fell 0.88% to close at 7,361.63 after Goldman Sachs warned of inflation in the UK rising above 22% next year if energy prices continue to increase at their current pace.

What to watch: Traders await the release of economic data on inflation and consumer price index from the Eurozone today. Eurozone’s annual inflation rate, which accelerated to a new record high of 8.9% in July, is expected to rise further to 9.1% in August. Analysts expect the bloc’s consumer price index to rise to 117.8 in August, from 117.14 points in July.

Other Markets: US indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.96%, 1.10% and 1.13%, respectively.

Support & resistances for today

Technical Levels News Sentiment
GBP/USD – 1.1664 and 1.1673 Positive
NZD/USD – 0.6133 and 0.6141 Positive
DAX 40 – 12914.33 and 12972.13 Negative
Nikkei 225 – 28020.16 and 28064.16 Negative
Gold – 1733.15 and 1735.40 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0028, 0.13%) Dow ($31,959, 0.58%) Brent ($98.79, 1%)
GBP/USD (1.1671, 0.14%) S&P500 ($4,011, 0.58%) WTI ($92.56, 1%)
USD/JPY (138.57, -0.15%) Nasdaq ($12,443, 0.66%) Gold ($1,735, -0.1%)

What else to watch today

Germany’s unemployment rate, unemployment change, number of unemployed persons, and import prices, France’s inflation rate, GDP growth rate, producer prices and household spending, Turkey’s GDP growth rate, Spain’s current account, Italy’s inflation rate and producer price inflation, India’s central government budget value, GDP growth rate and infrastructure output, US MBA mortgage applications, ADP employment change, Chicago PMI, crude oil inventories, gasoline stocks and distillate stockpiles, Brazil’s unemployment rate and government budget value, South Africa’s balance of trade, Canada’s GDP growth rate, as well as Russia’s money supply M2, unemployment rate, retail sales, real wages, business confidence and GDP growth rate.


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