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Best Buy beats, shares soar

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Best Buy beats, shares soar

While Best Buy (NYSE:BBY) was once on the brink of bankruptcy, the company has indeed turned itself around over the last couple years. On Tuesday the company reported a clean earnings beat and consequently shares soared more than 10% early in the session. With strong profits and revenues the street is no longer questioning the long term viability of the company’s business model. Best Buy generated earnings of $0.32 a share on $9.3 billion in sales. These results came in far above analyst consensus estimates which had looked for only $0.12 a share on sales of $9.13 billion.

Over the last decade the company has run into trouble as online competition has pulled away its traditional customer base. To combat this problem, management decided to leverage its brand and get some skin within the online game. Shareholders should praise this decision as the move online was the primary driver of the beat. As a result of higher traffic to the company’s website and higher tickets, comparable online sales grew by 10.5%. This growth far outpaced the growth seen in the company’s traditional brick and mortar stores. Sales at Best Buy stores open a year a more fell 0.6%, the same old story. Gross margin widened to 26.5% from 24.2%, as input costs were down 3.5%.

Going forward, the company will be looking to focus on separation of brands within its stores. The results of this focus haven’t been overly positive, however, it may be a necessary step in keeping customers coming back to the company’s retail locations. By offering price matching within the store, Best Buy regained some of its customer base which had only used the store for “showrooming”, and as you can tell gross margins remains intact. I would expect to see a number of analysts upgrades in the coming week, higher margins and strong comparables will make even the most bearish analysts up guidance.

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