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Can Best Buy’s Revenue Keep Improving?

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Sales trend

Best Buy (BBY) beat analysts’ revenue expectations in two of the first three quarters of fiscal 2018. The company’s revenue has grown for three consecutive quarters in a tough retail environment. Best Buy’s revenue grew 1.0%, 4.8%, and 4.2% in fiscal 1Q18, 2Q18, and 3Q18, respectively.

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Lower-than-expected Q3 revenue

In fiscal 3Q18, which ended on October 28, Best Buy’s revenue grew 4.2% to $9.3 billion lagging analysts’ expectation by 0.4%. The company’s revenue was adversely impacted by hurricanes in the United States and an earthquake in Mexico, whose combined impact negatively affected fiscal 3Q18 same-store sales growth by 15 basis points to 20 basis points. Best Buy’s same-store sales grew 4.4% in fiscal 3Q18.

Best Buy’s fiscal 3Q18 revenue was also hit by lower mobile phone revenue resulting from the delay in the launch of Apple (AAPL) iPhone X to November. This delay in the much-anticipated launch made many customers postpone their smartphone purchases and adversely impacted Best Buy’s revenue by over $100 million in the third quarter.

Rival GameStop’s (GME) sales grew about 1.5% to $2.0 billion in fiscal 3Q17 (which ended on October 28), driven by strong software sales and continued demand for the Nintendo Switch and collectibles.

Expectations from top-line growth

Best Buy expects its fiscal 4Q18 (which ends on February 3, 2018) revenue in the $14.2 billion to $14.5 billion range, compared to $13.5 billion in fiscal 4Q17. Currently, analysts expect Best Buy’s revenue to rise 6.9% to $14.4 billion in fiscal 4Q18.

For full-year fiscal 2018, Best Buy expects its revenue in the range of $41.0 billion to $41.3 billion, indicating a growth of 4.0% to 4.8% compared to last year.

We’ll discuss Best Buy’s efforts to improve its margins in the next part of this series.

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