Best Buy Climbs After Unveiling Upgraded Long-Term Forecast

(Bloomberg) -- Best Buy Co. jumped after unveiling an upgraded long-term forecast spurred by investments in a membership program, remodeled stores and new services in areas such as health care and digital advertising.

Operating profit will amount to 6.3% to 6.8% of sales in fiscal 2025 and revenue will rise to as much as $56.5 billion, the electronics retailer said in a statement Thursday as it reported earnings. That easily surpassed Best Buy's pre-pandemic outlook and the expectations of Wall Street analysts, who had been predicting an operating margin of less than 6% on sales below $54 billion.

With the improved forecast, Best Buy took a step toward soothing investor fears that it would struggle to build on a surge in demand during the coronavirus pandemic. While the company acknowledged a looming sales slowdown this year and profit pressure from investments in its new services, it said it's positioned for a long-term expansion that will push results “well beyond” what it reported last year.

“We do not believe for a minute that we hit our peak revenue and margin this past year,” Chief Executive Officer Corie Barry said in a presentation to investors and analysts.

The shares jumped 8.5% to $109.42 at 9:48 a.m. in New York, the biggest intraday gain in six months. In the 12 months through Wednesday, Best Buy shares had fallen 1.6% compared with a 7.5% gain in an S&P 500 index of consumer discretionary companies.

Best Buy's previous earnings report, in November, had prompted the biggest rout in the shares since the start of the pandemic.

Limited ‘Downside'

“We remain hold-rated but the stock seems fairly washed out at current levels, likely reducing incremental downside potential,” Truist Securities analyst Scot Ciccarelli wrote in a note to clients.

Adjusted earnings fell to $2.73 a share in the fourth quarter, Best Buy said. Analysts had been expecting $2.72. Sales slipped 3.4% to $16.4 billion. Analysts had predicted $16.6 billion.

During the current fiscal year, which ends in early 2023, adjusted earnings will be no more than $9.15 a share, the company said. That compared with the $9.36 average of analyst estimates.

“We expect sales growth and earnings to look different” this year, Chief Financial Officer Matt Bilunas said in the statement. He said the two biggest variables in this year's forecast “are the short-term industry decline as we lap high growth and government stimulus, and the investment in our new membership program.”

Totaltech, the company's membership program, will help drive “meaningful growth,” as will Best Buy Health, an initiative to provide technologies to assist in the care of older people, Bilunas said.

Capital expenditures will range between $1 billion and $1.2 billion in the next three years, compared with less than $750 million during the last three, he said.