Best Buy jumps double-digits after rare retail outperformance

Electronics retailer Best Buy (BBY) posted better-than-expected quarterly results Tuesday, appearing to buck ongoing trends in brick and mortar sales and counterweighting Target's (TGT) miss last week, which was partly blamed on a cautious U.S. consumer and slowing demand for Apple (AAPL) products. Several analysts appeared upbeat on Best Buy's report but declined to outright recommend buying the stock, perhaps reflecting concerns that the sector still has some convincing to do before fears of a systemic shift in buying trends can be dispelled. BACKGROUND: On Tuesday morning, Best Buy reported second quarter earnings per share of 57c on revenue of $8.53B versus estimates of 43c on $8.4B. Total and domestic comparable sales each grew 0.8%, while comparable U.S. online sales grew 23.7% as compared to last quarter's 23.9% gain. The company forecast Q3 profit of 43c-47, revenue of $8.8B-$8.9B, and 1% comparable sales growth against analyst expectations for 45c on $8.77B. Best Buy also raised its full-year profit growth outlook from flat to low-single digits. MANAGEMENT COMMENTARY: Speaking during a post-earnings conference call, Best Buy CEO Hubert Joly stated, "Similar to last quarter's trends from an overall merchandising perspective, we saw year-over-year sales growth in health and wearables, home theater and appliances, partially offset by continued softness in mobile phones and gaming." Comparable appliance sales rose 8.2% despite "short-term disruptions" from investments in delivery programs. Computing benefited from the company's vendor partnerships, and Joly said he expects declines in mobile to reverse in the second half as "anticipated product launches stimulate consumer demand and as we lap the sales declines seen in the category last year." The CEO noted that, while Best Buy is rolling out virtual reality merchandising, he does not expect a material boost from sales of the technology this year. PIPER RAISES TARGET: Piper Jaffray analyst Peter Keith maintained a Neutral rating on Best Buy while raising his target on the stock to $38 from $31 after the quarter's results. Perhaps most notable, says Keith, was the 0.8% comparable sales increase versus the forecasted 0.4% decline, which now increases the likelihood of Best Buy maintaining positive comps amid new gadgets slated for the second half of 2016, including the iPhone 7. The analyst reminds investors, however, that Q2 expectations were initially higher before Best Buy warned of charges, though those never fully came to fruition, while tax benefits and share repurchases added an additional 3c to EPS this quarter. That said, Keith concludes that the retailer is demonstrating solid execution and market share gains, particularly in computing and tablets, which should drive positive comps for the balance of the year. GOLDMAN UPBEAT ON QUARTER: Goldman Sachs analyst Matthew Fassler said he expects shares to react positively on the "straightforward" beat, and highlighted that better-than-expected comparable sales were driven by a "surprise" outperformance in computing and mobile phones, while health and wearables were also called out by management for their growth. The analyst placed his estimates and price target under review pending commentary on Best Buy's conference call. PRICE ACTION: Shares of Best Buy are up roughly 19% to $39 in afternoon trading. Shares of electronic gadget makers Fitbit (FIT) and GoPro (GPRO) are also higher after the retailer's report, posting respective gains of about 3.6% and 2.6%.