Best Buy Co. Inc. (NYSE: BBY) gave investors a lump of coal to kick off the holiday season. On November 26, the retailer delivered its third-quarter earnings report for its 2025 fiscal year. The company missed its top and bottom lines, with earnings per share (EPS) of $1.26 and revenue of $9.45 billion. Analysts were expecting EPS of $1.30 and revenue of $9.63 billion.
BBY stock was already down over 9% in the three months heading into the report. That hasn’t stopped analysts from lowering their price targets on BBY stock since the report was released.
However, Best Buy's stock will still be up 14.5% in 2024. And many of the lower price targets are still higher than the BBY stock closing price of $89.80 on December 5, 2024. In fact, since the earnings report, UBS Group AG (NYSE: UBS) lowered its price target from $123 to $115, but the latter price still gives investors more than a 29% upside.
Earnings Reports Are Backwards Looking
The first thing to remember when looking for retail stocks that could outperform in 2025 is that earnings reports are lagging indicators. While it’s true that companies frequently offer guidance for the following quarter or the following year, the headline numbers typically drive short-term price action. And the numbers for Best Buy weren’t good.
Same-store sales, a critical metric for retailers, were down 2.8% in the quarter. The company also lowered its projections for comparable sales in the current quarter to a range between flat and down 3% and its full-year same-store sales projections to a decline between 2.5% and 3.5%.
This has been typical of retailers who are still dealing with consumers who, while spending, may not be spending as much. Chief Executive Officer (CEO) Corie Barry acknowledged that consumers were avoiding appliances and electronic gadgets as they focused on essentials.
But Barry acknowledged that consumers were holding back from big-ticket purchases in anticipation of holiday deals. To that end, the company said there has been a noticeable increase in traffic as Black Friday deals were announced.
The Brick-and-Mortar Model Is Holding Up
As someone who had much younger children 15 to 20 years ago, I remember when Best Buy was the place to go for the holiday’s hottest gifts. I spent more than a few dollars at the store, which was typically my go-to location. The company’s retail strategy of being an anchor store in many of the largest malls supported that.
Times have changed, and an increasing number of consumers are doing their shopping online. Sure enough, BestBuy.com gives Best Buy an online presence, but online revenue only makes up about one-third of the company’s total revenue. That means it’s still a destination for many consumers who may want to touch and interact with electronic devices before purchasing.
Barry affirmed that during the earnings call, saying the company was seeing consumers return to the stores since the election. If early reports are to be believed, it could be a robust shopping season even for brick-and-mortar retailers.
Tariffs Could Provide a Short-Term Tailwind
On the earnings call, Barry acknowledged that consumers may face higher costs if President-elect Donald Trump makes good on his pledge to impose sweeping tariffs on products from countries such as China and Mexico.
While the exact details of any policy are unclear, many consumers may decide there’s no time like the present to buy devices now rather than wait for newer models that may cost significantly more in 2025.
BBY Stock Offers Value Now and Growth Later
Looking at the BBY stock chart over the last three years doesn’t give investors much to be excited about. Investors have received a negative total return of around 2%. And that includes a dividend that yields 4.19% and has increased for 21 consecutive years.
But there’s no reason to believe that dividend won’t grow for a 22nd consecutive year in the coming quarter, particularly if Trump makes good on his pledge to lower the corporate tax rate. And with an annual payout of $3.76 per share plus ongoing share buybacks, there’s a lot of value in BBY stock.
Those lower tax rates would also boost net income and earnings per share, which could grow by an additional 6%. It’s likely that analysts aren’t factoring that into their price targets, which could lead to even higher upside for the stock in 2025.
