$BBY = Best Buy Stock Is Down Because Trade Wars Are a Drag for Retailers

Shares of electronics retailer Best Buy fell as the company’s latest quarterly results highlighted how tension over trade is hurting its performance.

Best Buy stock (ticker: BBY) was down 4% to $66.40 in morning trading. Earlier Thursday, the company reported first-quarter earnings per share of 98 cents, with revenue of $9.14 billion and same-store sales growth of 1.1%. The revenue number met Wall Street’s estimates, while the other figures were higher than expected.

The back story. Shares of Best Buy are up roughly 24% in 2019, beating the S&P 500. The retailer has been challenged by Amazon.com (AMZN) and other digital-first competitors, but is now seen as a survivor, It is similar, in that sense, to Target (TGT), whose shares jumped Wednesday as investors cheered its latest quarterly report.

The Best Buy results are for the last quarter overseen by CEO Hubert Joly, who was brought in to lead the company through a transition that has helped its shares achieve nearly triple the return of the S&P 500 over the last three years. Corie Barry, the company said in April, will take over in mid-June.

What’s new. The company held to forecasts for the full year it offered in February: Revenue of $42.9 billion to $43.9 billion, same-store sales growth of 0.5% to 2.5%, and non-GAAP earnings per share of $5.45 to $5.65. Domestic online revenue rose 14.5% year-over-year.

Best Buy beat its own first-quarter forecasts for same-store sales and EPS—management likes to trumpet guidance beats in its news releases—so some investors may be wondering why it didn’t increase its full-year outlook as a result. Short answer: trade.

“We are reiterating the guidance we provided at the beginning of the year,” Barry, who is currently CFO, said in a statement. “This outlook balances our better-than-expected first-quarter earnings, the fact that it is early in the year and our best estimate of the impact associated with the recent increase in tariffs on goods imported from China.” (That, the CFO said, refers to tariffs already in place, not ones that might yet be imposed.)

“We were encouraged by Best Buy’s much better-than-expected first-quarter 2019 earnings, particularly given the uneven results posted by a number of other large U.S. retailers over the past several days,” wrote Loop Capital’s Anthony Chukumba, who has a Buy rating and a $90 price target on the stock.

Looking ahead. The company on Thursday offered guidance for the current quarter, Barry’s first as CEO: revenue of $9.5 to $9.6 billion, same-store sales growth of 1.5% to 2.5%, and non-GAAP EPS of 95 cents to $1.

As the year progresses, investors may increasingly look toward growth from Best Buy’s services businesses. In its first-quarter release, Best Buy highlighted revenue from GreatCall, a senior-focused communications-services company, in citing reasons for revenue growth during the first quarter.

The average price target among analysts tracked by FactSet is near $77, suggesting a 17% return based on current prices.

BY: Email David Marino-Nachison at david.marino-nachison@barrons.com. Follow him at @marinonachison and follow Barron’s Next at @barronsnext.

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