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Why Best Buy’s Fiscal 3Q18 Results Disappointed Investors

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Best Buy’s 3Q results

Consumer electronics retailer Best Buy (BBY) disappointed investors with lower-than-expected revenue in fiscal 3Q18[1.Fiscal 3Q18 ended October 28, 2017] and its fourth-quarter guidance. The company’s third-quarter earnings were in line with analysts’ expectations. Best Buy delivered adjusted EPS (earnings per share) of $0.78 in fiscal 3Q18, which reflected a strong 30% year-over-year increase.

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Growth drivers in 3Q

The growth in Best Buy’s fiscal 3Q18 adjusted EPS was driven by higher revenue. Also, a lower tax rate favorably impacted the fiscal 3Q18 bottom line by $0.02. Best Buy’s effective adjusted tax rate was 30.4% in fiscal 3Q18 compared to 36.6% in fiscal 3Q17. The company’s fiscal 3Q18 EPS also benefitted from a lower share count due to share buybacks. Best Buy’s weighted average diluted shares outstanding were 305.4 million at the end of fiscal 3Q18 compared to 320 million at the end of fiscal 3Q17.

However, natural disasters in South Texas, Florida, Puerto Rico, and Mexico adversely impacted fiscal 3Q18 adjusted EPS by $0.03. Also, higher variable costs associated with increased revenue and higher expenses related to growth investments put pressure on Best Buy’s earnings.

Rival GameStop (GME) is scheduled to announce its fiscal 3Q17 results on November 21. Analysts expect the company’s adjusted EPS to fall by about 14.0% in fiscal 3Q17.

Earnings guidance raised

Following strong earnings growth in fiscal 3Q18, Best Buy raised its guidance for full-year fiscal 2018, which ends on February 3, 2018. Best Buy expects its fiscal 2018 adjusted operating income to grow by 7.0% to 9.5%. This compares to the company’s previous outlook of 4.0% to 9.0% operating income growth.

We’ll take a closer look at Best Buy’s fiscal 3Q18 revenue in the next part of this series.

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