The news was mostly positive. Comparable store sales rose by 6.2% and overall sales rose from $8.9 billion in the year-ago period to almost $9.4 billion. In addition, adjusted earnings per share climbed to $0.91, up from $0.69 a year earlier.
Investors, however, did not like that online sales growth slowed from 31% in the year-ago period to 10% in Q2 of fiscal 2019. They also did not react well to the company’s third-quarter guidance, even though the chain raised its full-year forecast.
“For the full year, we now expect FY19 comparable sales growth of 3.5% to 4.5% versus our original guidance of flat to growth of 2%, and we are raising our expectation for our non-GAAP diluted EPS to a range of $4.95 to $5.10 versus our original guidance of $4.80 to $5,” said Best Buy CFO Corie Barry in the earnings release. She did note, though, that the company expects “a non-GAAP operating income rate decline in the third quarter followed by an increase in the fourth quarter.”
These bits of “bad” news led the retailer’s shares to dip after the earnings call. This looks like a case of investors not seeing the bigger picture. After all, this was a very strong earnings report and the company remains one of retail’s big success stories.
Best Buy gets it
The electronics retailer has been on a disciplined long-term path since Hubert Joly took over as CEO in 2012. As part of that discipline, the company has focused on long-term goals, not what it reports each quarter.
“Similar to the past several years, we remain focused on managing the business for long-term success rather than ensuring a straight-line quarterly operating income rate performance,” Barry said.
The evolution continues
While Best Buy is no longer in turnaround mode, that does not mean the company is standing pat. It recently made a deal to acquire GreatCall, a company that provides health services for older consumers through connected devices. That move expands Best Buy’s service business into a new, growing area.
“Our purpose as a company is … to enrich lives with technology by addressing key human needs,” said Joly on the Q2 earnings call. “One of these needs, we highlighted during our Investor Day meeting last September, is health and wellness, the space we’ve decided to expand into with a focus on aging consumers and how technology can help them live a more independent life.”
GreatCall is already profitable. It has 900,000 subscribers and more than $300 million in annual revenue, according to Joly.
The CEO believes the combination will work well because Best Buy will be able to significantly grow the GreatCall customer base. “The combination of their products, services, and expertise with Best Buy assets, including our merchandising, marketing, sales and service capabilities, provides the opportunity to both scale their existing consumer business and pursue commercial opportunities with payers and providers,” he said.
Service is key
Best Buy has also had good preliminary returns on its Total Tech Support program, which launched in May. Joly was pleased with the initial results, saying they are “in line with expectations.”
Total Tech members pay $199 per year for unlimited Geek Squad support online, in store, and via the service’s app. It’s an evolving program designed to have tech support that is not limited to a single product, but is set up to help customers have their whole home work together.
Programs like this are key because they tie consumers to the retailer. It makes sense to shop at Best Buy if you already have a service relationship with the company.
Best Buy has become more than a retailer. That gives it added strength as consumer wants and needs change in the electronics space. GreatCall specifically gives the company a major hedge against the cyclicality of the consumer electronics business. People can’t stop aging, and as technology-savvy generations have a need for on-call, digital healthcare, Best Buy will be well positioned in this space.
Best Buy is a company built for the long term. It may have down quarters, but it’s pointed in the right direction overall.