Shares of Best Buy were popping Thursday as management made its case that an artificial intelligence upgrade cycle for personal computers and devices is beginning. The company's fiscal 2025 first-quarter revenue fell 6.5 percent year-over-year to $8.85 billion in the three months ended May 4, missing analysts' expectations of $8.96 billion, according to estimates compiled by LSEG. is deprived of LSEG's data showed adjusted earnings per share of $1.20 rose 5.3% on a year-over-year basis and topped analysts' forecasts of $1.08. BBY YTD mountain Best Buy YTD Best Buy stock's nearly 13% gain was all about what the post-earnings conference call said about how consumers want the latest and greatest AI features on their PCs and smartphones. , which means more stores and online traffic and more sales for the electronics retailer. Bottom Line It was a scary quarter from Best Buy. Although domestic and overseas sales missed the mark, the company performed more efficiently than the Street expected as profit results came in better than expected. Same-store sales fell. But management said on the call that “gains in services and laptops” helped offset struggling categories like appliances. Services, including subscription offerings, helped boost the company's gross margin performance. Services is one area that Best Buy can lean into and leverage to differentiate itself from online retailers like Amazon. While Amazon can compete on prices and offers, it doesn't have physical locations like Best Buy, making it difficult to compete in terms of personal customer experience, product setup, or technical support for things. . That doesn't mean Best Buy is sitting idly by in e-commerce, the company is growing with its omni-channel experience, CEO Corey Berry said on the call that “the fulfillment experience just keeps getting better. With nearly 60% of our packages delivered or available for pickup within a day, and 40% of our digital sales being picked up by our customers in stores, over 90% of those orders take just 30 minutes. I'm available.” Why we own Best Buy: We took a position in Best Buy because we believe it will be the go-to destination for customers looking to upgrade hardware, much of which was purchased during Covid. On new AI-powered devices. The life cycle of a computer and mobile device is about four years, which is how far we are from the beginning of the epidemic when everyone was building their own home offices. In the meantime, we're happy to be patient as Thesis continues thanks to an annual dividend yield of around 5%. Competition: Target , Walmart , Amazon , Costco Latest Purchase : April 30, 2024 Launched : March 27, 2024 Consumer health remains an important watch item and is not unique to Best Buy. “Macro factors continue to cause volatility and pressure on consumer spending,” Barry said. “Consumers continue to make tough choices with their budgets, cutting back on some sectors while still prioritizing spending on services and experiences like travel,” she continues. from low demand for high-ticket consumer electronics and a focus on value and deals for existing buyers.” With that in mind, the team is still looking for new ways to enhance the customer experience and Best Buy's CEO is confident that key categories will return to growth. He cited technological innovation, such as AI-powered PCs, as a key catalyst. Computing and mobile phones accounted for 44% of Best Buy's domestic sales in the quarter – 50% of international sales – making it the largest and most meaningful category for the company by far. Barry expects computing to benefit as the year progresses, thanks to AI-powered hardware changes and upgrades. We, of course, agree with that view, especially given that we are now more than four years removed from the start of the Covid pandemic, a time when many people were setting up home offices. . The life cycle of a PC and a mobile phone is about four years. While some may want to step it up, the increased capabilities of machines with AI in mind will make the upgrade easier to lure and justify this time around. “We've seen early signs of improvement as year-over-year comparable laptop sales turned slightly positive in the fourth quarter, and that trend continued in Q1,” Berry said. Importantly, he noted that not only will Best Buy have the largest assortment of AI-powered PCs, but more than 40% of that assortment will be exclusive to Best Buy. Going back to how Best Buy can compete with the likes of Amazon, Best Buy works with retailers on marketing strategies and demonstrations to offer a “uniquely educational and interactive digital shopping journey.” Is. In another sign of how more powerful devices can drive foot traffic, Berry said Apple's new M4-equipped iPads are “already contributing to better sales trends this quarter.” While reported results were mixed, it's a combination of better-than-expected profits and signs that a major compute upgrade cycle, driven by AI-equipped machines coming to market, is in the cards as we progress through the year. We believe our fundamental investment thesis remains intact, and therefore reiterate our Buy-equivalent 1 rating and price target of $95 per share. Guidance for fiscal 2025, management said they expect to see same-store sales results improve sequentially and trend toward the middle of the targeted range. However, the team believes that even in the middle of their same-store sales forecast, they can achieve an adjusted operating profit result towards the upper end of the targeted range, thanks to membership and service offerings. But there are high gross profit margins. However, full-year guidance remained unchanged. At the midpoint, revenue was $41.3 billion to $42.6 billion, a hair ahead of estimates of $41.94 billion, according to FactSet. Same-store sales fell 3% to flat, in line with expectations. Adjusted operating margin between 3.9% and 4.1%, also in line with the 4% consensus estimate. At the midpoint, adjusted earnings ranged between $5.75 and $6.20 per share, slightly below estimates of $6.04 per share. (Jim Cramer's Charitable Trust is long BBY, AMZN. See here for a complete list of stocks.) 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Shares of Best buy were popping up Thursday as the administration made its case that artificial intelligence upgrades for personal computers and devices are starting to happen.
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