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Why Best Buy Expects Revenue to Fall Further in Fiscal 2017

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Fiscal 2017 outlook

Best Buy (BBY) expects its revenue to keep falling in the first half of fiscal 2017, which ends on January 28, 2017, based on the current industry dynamics. The company expects its revenue to improve in the second half of the year. In the 4Q16 conference call, Hubert Joly, Best Buy’s chairman and chief executive officer, stated that the company expects its Domestic segment’s revenue to be flat in fiscal 2017. This is because strength in categories like Connected Home and Appliances is offset by softness in mobile phones.

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First quarter outlook

Best Buy expects its overall revenue in the first quarter of fiscal 2017 to be $8.25–$8.35. This guidance reflects a decline of 2.4% to 3.6% on a year-over-year basis. Best Buy’s outlook assumes overall same-store sales and Domestic segment same-store sales will fall 1% to 2% due to continued softness in the mobile and tablet categories. The company expects its 1Q17 International business revenue to fall 15% to 20% due to currency headwinds and Canadian brand consolidation.

The company expects its adjusted earnings per share in 1Q17 to be $0.31–$0.35, assuming a diluted weighted average share count of approximately 326 million.

The iShares Russell 1000 ETF (IWB) has 0.1% exposure to Best Buy.

Valuation

As of February 25, Best Buy was trading at a 12-month forward PE (price-to-earnings ratio) of 11.3x. The company’s valuation multiple has risen 2.5% since the start of 2016. Best Buy is trading at a premium valuation multiple compared to other specialty retailers like GameStop (GME), Aaron’s (AAN), and Conn’s (CONN). As of February 25, GameStop, Aaron’s, and Conn’s were trading at forward PEs of 7.3x, 10.5x, and 9.7x, respectively. The S&P 500 Consumer Discretionary Index and the S&P 500 Index were trading at forward PEs of 17.3x and 16.2, respectively, as of February 25. Currently, analysts expect Best Buy’s adjusted earnings per share in fiscal 2017 to rise 1%.

For more updates, visit our Consumer Discretionary page.

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