- Wedbush analyst Seth Basham reiterated a Neutral rating on the shares of Best Buy Co BBY and raised the price target from $80 to $85.
- Best Buy reported 3Q22 results that were better than the company’s guidance and flowed through the outperformance into updated full-year guidance, said the analyst.
- Comparable sales decline of 10.4% were ahead of guidance for comparable sales, slightly worse than 2Q22.
- Basham thinks the company is lapping a period when consumers spent more time in their homes and receiving government stimulus benefits. These consumers currently focus more on value-oriented purchases as they face increasing financial constraints.
- After August, where Best Buy reported a 10% fall in revenue, experienced sequential improvement in September before sequentially decelerating to 15% decline in October.
- But sales trends on a three-year basis ended strongly, with October the best performing month with holiday shopping more prevalent compared to pre-pandemic.
- From a merchandising perspective, the company experienced y/y declines across most product categories with the largest impacts coming from computing and home theater.
- However, Basham said computing remained well above pre-pandemic levels.
- Best Buy’s latest guidance implies comparable sales declining about 10% in 4Q22 as well as operating margins down 110 bps y/y to 4.1%.
- The company expects more normalized shopping activity concentrated during Black Friday week, Cyber Monday and the two weeks leading up to Christmas.
- Basham expects that Totaltech could drive slight gross margin improvement as BBY continues to iterate and scale the program.
- While he continues to see potential for store labor and footprint transformation in the mid- to long-term to drive higher margins, near-term macro pressures as well as prospects for flat-to-down 2023 operating margins have led him to remain Neutral.
- Price Action: BBY shares are trading higher by 1.09% at $80.74 on the last check Wednesday.
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