Best Buy Outlook Far From Robust, Says Analyst

Wedbush analyst Seth Basham reiterated a Neutral rating on the shares of Best Buy Co BBY and raised the price target from $80 to $85.
Best Buy reported 3Q22 results that were better than the company’s guidance and flowed through the outperformance into updated full-year guidance, said the analyst.
Comparable sales decline of 10.4% were ahead of guidance for comparable sales, slightly worse than 2Q22.
Basham thinks the company is lapping a period when consumers spent more time in their homes and receiving government stimulus benefits. These consumers currently focus more on value-oriented purchases as they face increasing financial constraints.
After August, where Best Buy reported a 10% fall in revenue, experienced sequential improvement in September before sequentially decelerating to 15% decline in October.
But sales trends on a three-year basis ended strongly, with October the best performing month with holiday shopping more prevalent compared to pre-pandemic.
From a merchandising perspective, the company experienced y/y declines across most product categories with the largest impacts coming from computing and home theater.
However, Basham said computing remained well above pre-pandemic levels.
Best Buy’s latest guidance implies comparable sales declining about 10% in 4Q22 as well as operating margins down 110 bps y/y to 4.1%.
The company expects more normalized shopping activity concentrated during Black Friday week, Cyber Monday and the two weeks leading up to Christmas.
Basham expects that Totaltech could drive slight gross margin improvement as BBY continues to iterate and scale the program.
While he continues to see potential for store labor and footprint transformation in the mid- to long-term to drive higher margins, near-term macro pressures as well as prospects for flat-to-down 2023 operating margins have led him to remain Neutral.
Price Action: BBY shares are trading higher by 1.09% at $80.74 on the last check Wednesday.

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