Strategy

Best Buy 4-Year Outlook Disappoints Investors

The retailer's stock has fallen 8.3% over the past two days amid concerns it will gain market share and pass through earnings from expected sales g...
Matthew HellerSeptember 20, 2017

Best Buy shares fell for a second straight day on Wednesday, reflecting investor disappointment over the company’s financial outlook for the next four years.

On its investor day, the consumer electronics retailer said Tuesday it expects enterprise revenue to increase to $43 billion in fiscal 2021 from $39.4 billion in fiscal 2017, representing a compound annual growth rate of about 2%.

Earnings for 2021 are forecast to come in at $4.75 to $5.00 per share, below analysts’ expectations of $5.30 per share.

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Analysts at UBS said the guidance was realistic in a fast-changing retail sector, implying “modest top-line growth, steady margins and healthy share repurchases.” After reversing its once-failing fortunes by closing stores, improving customer service and matching Amazon on price, Best Buy has beaten estimates for sales for six of the past eight quarters.

But in trading Wednesday, its shares fell 0.3% to $52.59 following a drop of 8% on Tuesday, when it also announced its “Best Buy 2020: Building the New Blue” growth strategy.

According to Investor’s Business Daily, analysts are concerned about Best Buy’s financial targets, “including its ability to gain market share and whether it can pass through earnings from its expected sales growth.”

UBS analyst Michael Lasser said Best Buy’s target of annual sales growth of about 2% represents an acceleration from the average 1% same-store sales growth it has achieved over the past few years.

While Best Buy has taken market share from failed rivals like RadioShack and HHGregg, he wrote in a client note, “Now, there just aren’t players of this size who are likely to donate share of a similar magnitude (aside from Sears in appliances and TVs).”

As part of the “Best Buy 2020” strategy, the company is pushing smart home displays inside its stores, expanding its In-Home Advisor program, and offering a Geek Squad service to provide tech support for products sold at any retailer.

“Best Buy is evolving how it sells to focus not on just selling products but solving customers’ underlying needs,” it said in a news release.