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Best Buy Stock May Be Best Bought Before the Holiday Season

Published 06/26/2024, 02:49 AM
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  • Best Buy reported a solid fiscal Q1 2025 EPS beat, driving shares to 52-week highs.
  • Best Buy sees services and computing revenues to offset weakness in appliances, home theater, gaming, and mobile phones.
  • Best Buy sees AI-enabled electronics like laptops driving a replace and upgrade cycle as features like summarization and recall can instantly summarize documents and recall them by visual cues.

Consumer electronics retailer Best Buy Co (NYSE:BBY) stock surged to 52-week highs following a robust fiscal Q1 2025 performance. The company offers a vast selection of hardline products, including laptops, desktop computers, appliances, televisions, cameras, mobile phones, video game consoles, music, and movies. It’s one of the few remaining brick-and-mortar showroom electronics chain stores in the nation. However, Best Buy has also grown its online sales and bolstered its technical support and services with its Geek Squad division.

Best Buy operates in the consumer discretionary sector and competes with electronics retailers like Amazon.com (NASDAQ:AMZN), Walmart (NYSE:WMT) Inc, Target Corporation (NYSE:TGT), and Conns Inc (NASDAQ:CONN).

Best Buy and AI Trends: Indicators of a Potential Recovery Cycle?

Consumer spending on big-ticket items has been soft, as evidenced by May month-over-month (M/M) retail sales growth of 0.1%, missing consensus estimates for a rise of 0.3%. Furniture and home furnishing took a 6.8% YoY drop. However, electronics and appliances saw a 1.8% YoY bounce. Best Buy is a pure-play benefactor, evidenced by its recent earnings beat and soaring stock price. This leaves investors to wonder if this could be the start of a recovery cycle in the consumer electronics industry. The artificial intelligence (AI) boom could be a factor driving consumers to upgrade computers and laptops acquired during the pandemic to AI-enabled devices.Best Buy Inc Price Chart

BBY Stock Triggers a Bull Flag Breakout

The daily candlestick chart for BBY demonstrates a bull flag breakout pattern. BBY shares surged for five days in reaction to its fiscal Q1 2025 earnings results peaking at $88.96 on June 5, 2024. This was the flagpole. The flag formed on the parallel pullback comprised of lower highs and lower lows on the following six days. The bull flag triggered the breakout through the descending upper trendline at $88.07 on June 17, 2024, as shares surged to a 52-week high of $93.72 before peaking. The daily relative strength index (RSI) also peaked at the 78-band and fell back under the 70-band. Pullback support levels are at $88.07, $82.91, $77.40, and $74.92.

Best Buy Scores a Solid EPS Beat, But Revenues Fall Short in Q1

Best Buy reported fiscal Q1 2025 EPS of $1.20, beating consensus analyst estimates by 12 cents. GAAP diluted EPS rose 2% to $1.13. Non-GAAP operating income rate rose 40 bps to 3.8%. Non-GAAP diluted EPS rose 4% to $1.20. Revenues fell 6.5% YoY to $8.85 billion, which missed $8.96 billion consensus estimates. Enterprise comparable (comp) sales fell 6.1% YoY. International comp sales fell 3.3% YoY. Best Buy bought back $50 million in stock in the quarter and paid out $202 million in dividends. The company authorized a 94-cent quarterly cash dividend payable July 11, 2024, to shareholders of record as of the close of business on June 20, 2024.

Best Buy's Weakness in Appliances, Home Theater and Gaming Was Offset By Services and Laptops

Domestic sales fell 6.8% YoY to $8.20 billion. The largest drivers of comp sales decline on a weight basis were home theater, appliances, mobile phones, and gaming. These are offset by strength in services like Geek Squad membership offerings and laptops (AI-enabled). International revenues fell 3.3% YoY to $644 million.

Best Buy Reaffirms Guidance

Best Buy reaffirmed fiscal full-year 2025 EPS guidance of $5.75 to $6.20 versus $6.04 consensus estimates. Enterprise non-GAAP operating income rate is expected to be between 3.9% to 4.1%. Full-year revenues are expected between $41.3 billion and $42.6 billion versus $41.94 billion. Comp sales are expected to drop between 3% and 0%. Capital expenditures (CapEx) are expected to be around $750 million.

Best Buy CEO Sees the Glass More than Half Full

Best Buy CEO Corie Barry was upbeat during the earnings conference call, underscoring the "better-than-expected Q1 profitability" narrative. A combination of macro factors created a challenging sales environment. The weak sellers were phones, gaming, appliances, and home theater products. Strength can come from sales of services like installation and warranties and laptops. Digital sales comprised 31% of domestic sales, and 60% of its packages were delivered or made available for pickup within a day. In-store pickups are applied to 40% of its digital sales, and over 90% are available within just 30 minutes.

CEO Barry continues to see 2024 as a year of increasing industry stabilization. Several indicators showed favorability, including lower unemployment, decreasing inflation, and an encouraging trend in consumer confidence, coupled with the beginning of a recovery in the housing market.

Best Buy Sees Growth: AI Features Propel Laptop Sales

CEO Barry sees the computing category benefitting from early replacement and upgrade cycles gaining momentum, especially as new products featuring AI capabilities are released. Best Buy's laptop sales turned positive in Q4 and have continued into Q1. Microsoft (NASDAQ:MSFT) Co announces Copilot Plus AI for laptops available on June 18, 2024. With faster speed, better battery life, and greater efficiency, AI features like summarization can quickly recap lengthy email threads and pages of documents.

Barry added exciting new use cases for AI laptops: “For example, there is a recall function that makes it very easy to find documents based on visual cues or help users easily navigate back to a website to find a specific item they shopped for three weeks ago. They also have a live language translation function that works in real-time on videos without requiring a connection to the Internet. And the co-create capability can take your rough sketches and turn them into works of art.”

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