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What Could Drive Best Buy’s First-Quarter Earnings?

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Strong growth expectations

Best Buy (BBY) exceeded analysts’ earnings expectations in seven of the past eight quarters and was in line with estimates in one quarter. For the first quarter of fiscal 2019, which ended on May 5, analysts expect Best Buy’s adjusted EPS (earnings per share) to rise 23.3% on a year-over-year basis to $0.74.

Analysts expect specialty retailer GameStop’s (GME) adjusted EPS to fall about 41% to $0.37 in the fiscal first quarter of 2018, which ended on May 5, 2018, for GameStop.

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Performance in the past quarter

Best Buy’s adjusted EPS of $2.42 in the fourth quarter of fiscal 2018 exceeded analysts’ expectation of $2.04. The company’s adjusted EPS grew 25.4% in the fourth quarter of fiscal 2018. This growth was driven by a lower adjusted tax rate, higher revenue, and a lower share count due to share repurchases. The extra week in the fiscal fourth quarter added about $0.20 per share to the fiscal fourth quarter EPS. However, higher incentive compensation and a lower periodic profit sharing benefit from the company’s services plan had an adverse impact on the fiscal fourth quarter bottom line.

Company’s guidance

Best Buy expects its adjusted EPS in the range of $0.68 to $0.73 for the first quarter of fiscal 2019. The company expects its fiscal 2019 adjusted EPS to be in the range of $4.80 to $5.00. Higher revenue and lower taxes are expected to drive the bottom-line growth. However, increased transportation costs and growth investments are expected to put pressure on the company’s profitability.

We’ll look at the company’s stock movement in the next part of this series.

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