Should Investors Blame Apple For Best Buy's Earnings Miss?

Shares of Best Buy (NYSE:BBY) were down more than 7% in morning trading Thursday, just hours after the company reported its third-quarter earnings results. While the electronics retailer was able to record solid growth on the top and bottom line, investors are punishing the stock because earnings and sales missed expectations.

In the second quarter, Best Buy reported earnings of 78 cents per share, up about 26% from the year-ago period but slightly below our consensus estimate of 79 cents. The company generated revenues of $9.32 billion, which was a 4.2% year-over-year improvement but behind our consensus estimate of $9.35 billion.

So why did Best Buy miss our estimates? Well, management pointed to a pair of possible reasons in the company’s earnings release. For one, Best Buy was impacted by the devastating hurricanes that hit Texas, Florida, Puerto Rico, and Mexico during the quarter.

But that’s been an issue that nearly every brick-and-mortar retailer has dealt with, and Best Buy’s other problem was a bit more specific to its own business. Indeed, management also said that revenue from mobile phone sales were “materially lower than expected” in the quarter.

“This was due to the fact that a major new phone did not launch until November, which is in our Q4. The related revenue impact in the quarter was more than $100 million,” said CEO Hubert Joly.

Joly and the rest of Best Buy’s management team stopped short of saying exactly what “major phone” they were referencing, but it is relatively obvious that the staggered release schedule of Apple’s (NASDAQ:AAPL) iPhone 8 and iPhone X devices is to blame here.

The iPhone 8 was released during Best Buy’s third quarter, but demand for the device was significantly muted compared to a typical iPhone release. Simply put, consumers were more excited about the iPhone X, which promised to be the biggest step forward for Apple’s flagship line of phones since the original device.

“As a result, we are raising our Q4 outlook versus what was implied in the expectations provided on our last earnings call,” said CFO Corie Barry.

In addition to this improved outlook for Q4, Best Buy raised its outlook for the upcoming fiscal year. The company now projects Enterprise revenue to rise between 4% and 4.8% versus 4% guided for earlier.

Best Buy might be experiencing some volatility as investors react to its earnings miss, but it should be encouraging that this underperformance can be traced back to one-time occurrences that will have little impact on the company going forward.

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