Is Best Buy the Best Buy?

Consumer electronics retailer Best Buy (NYSE: BBY) is facing tough comparisons following several quarters of robust demand for its products fueled by work-from-home and remote learning trends as well as several rounds of government stimulus.

Best Buy’s Q4 FY22 (ended January 29, 2022) revenue declined 3.4% year-over-year to $16.4 billion. Comparable sales fell 2.3%, versus growth of 12.6% in Q4 FY21. Adjusted EPS was down 21.6% to $2.73.

The company faced multiple headwinds in Q4 FY22, including constrained inventory (even for some high-demand holiday items) and reduced store hours in January due to Omicron-led staffing issues.      

Best Buy shares have declined 6.3% year-to-date and 21.2% over the past 52-weeks.

Long-Term Growth

Given the near-term headwinds and moderation in demand, Best Buy expects comparable sales to decline by 1%- 4% in FY23, compared to the 10.4% growth in the previous fiscal year. However, the company is optimistic about its long-term prospects and expects that in FY25, the consumer electronics industry will return to the robust demand levels seen last year.   

Best Buy is investing heavily in its membership program (Best Buy Totaltech), technology, and Best Buy Health to drive future growth. Last year, the company acquired Current Health, a care-at-home technology platform, as part of its strategy to capture opportunities in healthcare.  

Wall Street’s Take

Last month, Raymond James analyst Bobby Griffin downgraded Best Buy to a Hold from a Buy without assigning a specific price target. While the analyst was encouraged by management’s commentary about multi-year opportunities at the company’s investor event, he finds the setup for the next few quarters very challenging.

Griffin cited valuation and concerns about near-term discretionary demand as reasons for the downgrade.

All in all, the Street is divided on Best Buy, with a Moderate Buy consensus rating based on six Buys and six Holds. The average Best Buy price target of $122.31 suggests 28.44% upside potential over the next 12 months.  

Conclusion

Over the past few years, Best Buy has strengthened its business by investing in online channels, services, and other growth avenues. These initiatives, along with cost controls and enhanced merchandise offerings, have helped the company grow despite intense competition from online retailers, mainly Amazon.

While the long-term growth story remains intact, several analysts are concerned about the impact of near-term headwinds like inflation, supply chain bottlenecks, and labor challenges.    

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