Analyst Note| Jaime M. Katz, CFA |
No-moat Best Buy continued to benefit from high demand for consumer electronic products throughout its fiscal year, which led to comp sales growth of 9.2% (roughly in line with our 9.5% forecast, with full-year comp online sales up 144.4%) and revenue growth of 8.3% (slightly below our 9% projection). Operating margin expanded to 5.1% from 4.6% in 2020, aligning with our expectations. The firm indicated in its third quarter that the 20% sales growth seen earlier in the pandemic was unsustainable, which we agreed with, but we feel that increased operating efficiencies (such as store-level operational changes and a shift to online purchases) still support our medium-term projection of 5%-6% operating margins. Online sales made up 43% of domestic sales this quarter, and we expect online sales to compose about 40% of domestic sales going forward, offering more support to our belief that the above 5% operating margins are sustainable. We don’t plan to substantially alter our $98 per share fair value estimate and view shares as fairly valued after a high-single-digit decline post print.