Your best buy of Best Buy (BBY) may just not be made today. The electronics and home appliances chain store retailer reported the firm's fourth quarter results on Thursday morning. The results were good and bad. The guidance was just plain old scary. A sell-off was born. Best Buy posted adjusted EPS of $3.48, beating expectations by a few pennies, and good for year over year growth of 20%. Revenues printed at $16.9 billion, up 11.2% which is solid, but not quite as solid as was expected.
Enterprise comparable sales (online and on location) increased by 12.6%, and one might think that kind of growth spectacular, if not for the 14.7% that Wall Street was looking for, or for the 23% comp sales growth experienced for Q3. There's more, once e-commerce is isolated... online comparable sales increased 89.3% annually. While almost any other retailer would dance with joy upon being able to report such growth, this is Best Buy, and every white collar worker in the country/world was forced to load up on technology as they built home offices earlier in this pandemic. That 89.3% is down sequentially from 174% for Q3, and 242% for Q2. How's that for perspective?
Looking ahead, Best Buy expects online sales to rise to 40% of total sales for the current year. This has come at a cost for the firm's labor force. Between layoffs that number a rough 5K, and the forces of attrition that account for the rest, the firm has reduced headcount from 123K at the start of this past fiscal year to 102K by the last day of the fourth quarter. Most of those that either left or were let go were full-time employees. In fact, as the way Americans shop evolves the way retailers sell does as well. Best Buy is devoting less floor space at current locations to traditional retail, and more toward online order fulfillment.
Then, management dropped a bomb. CFO Matt Bilunas said, "Initial FY22 (current year) outlook for comparable sales growth in the range of -2% to +1% assumes that customers resume or accelerate spend in areas that were slowed during the pandemic such as travel and dining out, in the back half of the year." Gee whiz, tell us how you really feel. Not that one needs to mislead, in fact I am quite grateful for the honesty, but I didn't hear the material, I read it, and to me... the pessimism just drips off the page. Yes, I still print out everything I read because I like to read off of paper, and I like to mark things up while I read them.
For investors caught "long and wrong" the name this morning, the firm did offer up a little something. Best Buy expects to repurchase $2 billion in common stock in addition to approving a $0.70 quarterly dividend (up from $0.55) payable April 8th, for shareholders of record March 18th. At a last sale of $108.76, this would put the forward looking yield at 2.57%.
Best Buy is probably evolving about as quickly and as correctly as a national big box retailer can. Is the guidance intentionally conservative? Perhaps. It certainly is not dressed up for the purposes of supporting the stock, so you do have that going for you. Unfortunately, algorithms search for words, so there is a price to pay for erring on the side of caution.
The chart is now problematic. Take a look at what I see...
Though the shares peaked three times in October/November, if one sees that as one peak, and the highs of February as another peak, we are looking at a "double top" here, and that's usually very bearish when it happens at the top of a lengthy period. In this case, the period is basically forever. There are two spots I see as potential points of entry.
One, BBY found support at par ($100) throughout the month of December. Two, there is still that unfilled gap that was left unfilled back in July. If $100 does not work, then we could be looking at prices in the low $90's. An investor interested in buying this dip, but unsure of how to go about it, could sell May $100 puts for about $5 a piece, and May $90 puts for about $2 a piece. Assuming the sale of one contract each, if these prices are not approached over the next three months, that puts $700 in the old back pocket. If the investor does get tagged at par, at least net basis on the purchase of 100 shares would be a cool $95. If the investor gets tagged at both $100 and $90, then the investor would be long 200 shares of BBY in May at a net basis of $91.50 with the shares trading below $90.