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What Drove Best Buy’s Strong Earnings Growth in Fiscal 2Q17?

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Earnings exceed expectations

Best Buy (BBY) exceeded analysts’ earnings expectations and reported strong earnings growth for fiscal 2Q17, which ended on July 30, 2016. The company reported adjusted EPS (earnings per share) of $0.57, which was well ahead of the consensus analysts’ expectation of $0.43. Best Buy exceeded analysts’ earnings expectations in every quarter of fiscal 2016 and fiscal 1Q17.

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Growth drivers

Best Buy’s adjusted EPS rose by 16.3% in fiscal 2Q17, driven by higher revenue of the company’s Domestic segment and certain other factors. We will discuss the company’s fiscal 2Q17 revenue in Part 3 of this series.

Best Buy’s earnings also benefited from its Canada operations, which have moved past the negative impact of brand consolidation in 2015. Best Buy’s earnings in fiscal 2Q17 included a $0.02 per share benefit, which resulted from a lower tax rate.

An 8.8% reduction in the average share count in the second quarter positively impacted Best Buy’s bottom line. Best Buy repurchased 7.1 million shares for $219 million in fiscal 2Q17. In the first half of fiscal 2017, the company repurchased 10.3 million shares for $316 million. The SPDR S&P Retail ETF (XRT) has 1.4% exposure to Best Buy.

Specialty retailer Aaron’s (AAN) reported a 3.3% decline in its second quarter adjusted EPS, as its higher revenue was offset by a lower operating margin.

Analysts expect Conn’s (CONN) fiscal 2Q17 adjusted EPS to be -$0.07 compared to $0.47 in fiscal 2Q16. Analysts expect GameStop’s (GME) adjusted EPS to fall by 14% in the comparable second quarter.

Earnings outlook raised

Following its fiscal 2Q17 results, Best Buy (BBY) kept its fiscal 2017 revenue outlook intact but raised its adjusted operating income guidance. The company expects its fiscal 2017 revenue to remain flat.

Best Buy now expects its adjusted operating income to grow by low single digits in fiscal 2017. The company earlier expected its fiscal 2017 operating income to remain unchanged compared to the previous year.

We’ll discuss the company’s fiscal 2Q17 sales in the next part of this series.

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