Image Source: Mike Mozart
By Brian Nelson, CFA
Back in late February, Best Buy (BBY) reported better than expected fourth quarter fiscal 2024 results, despite revenue pressures. Enterprise comparable store sales fell 4.8%, but the drop was lower than what consensus had been expecting and represented a marked improvement over the same 13-week period last year. Though Best Buy is not immune to the challenges in retail these days, the company continues to hold its own, despite a heated competitive environment.
Domestic revenue fell 0.9% due to a decline in comparable store sales, with management pointing to weakness in home theater, appliances, mobile phones and tablets, but strength in gaming-related revenue. Though revenue was under pressure in the period, the company was able to carve out a 60 basis-point improvement in its domestic gross margin rate thanks to its membership offerings. International revenue advanced 2.7% in the period due to revenue from an extra week in the comps, while its international gross profit margin shrunk 70 basis points.
Management had a lot of good things to say about the report:
In the fourth quarter and throughout FY24, we demonstrated strong operational execution as we navigated a pressured consumer electronics sales environment. This allowed us to deliver annual profitability at the high end of our original guidance range even though sales came in below our original guidance range. Importantly, we grew our paid membership base and drove customer experience improvements in many areas of our business, particularly in services and delivery.”
As we enter FY25, we are energized about delivering on our purpose to Enrich Lives through Technology in our vibrant, always changing industry. In what we expect to be a year of increasing industry sales stabilization, we are focused on sharpening our customer experiences and industry positioning while maintaining, if not expanding, our operating income rate on a 52-week basis.
Looking to fiscal 2025, management expects revenue in the range of $41.3-$42.6 billion on comparable store sales performance of -3% to flat. Best Buy is looking to expand its gross profit margin rate 20-30 basis points during the year thanks to its membership program, while enterprise non-GAAP operating income is targeted in the 3.9%-4.1% range. Non-GAAP diluted earnings per share is targeted in the range of $5.75-$6.20 for the fiscal year. For the first quarter of its fiscal year, however, comps are expected to be down 5%, while its operating income margin is expected at ~3.4%, both trending below its full-year targets.
Best Buy ended the year with ~$1.45 billion in cash and cash equivalents and short- and long-term debt of ~$1.17 billion, so Best Buy has a nice net cash position, though it does have operating liabilities on the books. For fiscal 2024, Best Buy generated ~$1.47 billion in operating cash flow and spent $795 million in capital spending, resulting in free cash flow of $675 million, below what it paid in dividends on the year ($801 million). That didn’t stop Best Buy from upping its dividend 2%, however, and the company continues to buy back stock. Best Buy yields ~4.6% at the time of this writing, but capital spending and volatile operating cash flow are two considerations top of mind for income-oriented investors.
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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