Best Buy, on strong financial footing, has its holiday playbook set

Best Buy is riding high heading into the holiday-shopping season with a suite of new tools at its disposal including free next-day delivery on thousands of items and dozens of new pickup locations inside of CVS and UPS stores across New York City.

The Richfield-based retailer's shares soared 10% on Tuesday, just shy of an all-time high, after question marks about the effect of tariffs and the health of the consumer were wiped away during its most recent quarter.

Better-than-expected sales and profits from August to October and increased confidence about the holiday season led Best Buy to raise its profit outlook for the year. The results helped solidify its position of one of the winners in retail along with Target, Walmart and Amazon, while department stores and mall-based specialty retailers are floundering.

"Best Buy is well-positioned to continue as one of the top performers in retail, with this holiday season set up for it to continue to build momentum," Moody's analyst Charlie O'Shea wrote in a note to clients.

The retailer said Tuesday it expects comparable sales growth of 0.5% to 3% in the important holiday quarter, a fairly wide range that gives it some wiggle room to account for heavy promotions but also some potential for a higher upside.

While Best Buy executives had signaled some uncertainty about the holidays earlier this year given the higher tariffs and concerns about a slowing economy, CEO Corie Barry said the electronics chain feels more confident about it after seeing its third-quarter results as well as robust holiday-spending forecasts put out by many firms such as Deloitte, PwC and the National Retail Federation. Other indicators such as low unemployment, wage growth and high consumer confidence also point to a good season, she said.

"We now have the benefit of knowing how the [third quarter] played out and we also have the benefit of some of the smartest people in retail providing their own points of view about the consumer," she told reporters on a conference call. "Every time you pile on a few more data points, you're able to provide a little more certainty in your forecast."

This holiday season, she said Best Buy is planning a "steady drumbeat" of promotions as well as strong in-stocks and product assortments. The retailer has already rolled out hundreds of doorbusters deals from its Black Friday ad in the last few weeks. But it's saving some deals for Thanksgiving Day when it will open its stores at 5 p.m.

Best Buy has said it will be able to ship thousands of items by the next day for free to about 99% of its customers this holiday, though larger items such as big-screen TVs and appliances are not eligible. In doing so, it will be able to match the upgraded speed Amazon has rolled out this year to members of its Prime program.

"Depending on where you live in the country, we're as good as anybody at getting stuff to you right away," Mike Mohan, Best Buy's president and chief operating officer told analysts on a conference call, adding that it hasn't cost Best Buy a lot of extra money to do so because of investments in its supply chain it's already made over the last few years.

"We've been doing store fulfillment — both in-store pickup and ship from store — longer than anybody else," he noted.

Best Buy is making a special push this holiday to win shoppers in New York City where it has kicked off a new marketing campaign, beefed up its in-home adviser program, and added 175 pickup locations where customers can grab online orders. Barry said the pickup spots at CVS and UPS are aimed at customers who do not live near Best Buy's 13 New York City stores or who may not want items shipped to their apartments. She added that the company plans to roll out other alternative pickup locations to other markets next year.

It has also begun adding curbside pickup services to some stores in the greater New York region as well as some other markets.

In Best Buy's third quarter, it saw a steep 12.5% jump in appliance sales in addition to growth in headphones, tablets, computers and services. Those categories were the biggest contributors to its U.S. comparable sales increase of 2% and helped make up for sales declines in gaming and home theater. Online sales rose 15%.

"Although revenue growth rates are far from dramatic, the results from Best Buy are very respectable and underline the strength of the retailer in a competitive and sometimes challenging market," Neil Saunders of GlobalData Retail said in a statement.

While tariffs led to small price increases on some items in the third quarter, executives said they were not significant and did not impact the quarter's results.

They said they don't expect tariffs to be a big factor in the fourth quarter either because of various mitigation tactics, but acknowledged it would be a topic of conversation going into 2020.

Net earnings in the quarter were $293 million, up 6% from the same period a year ago. When adjusted for one-time items, the retailer earned $1.13 a share, which was better than the $1.03 analysts were expecting.

Best Buy plans to have its Black Friday ad inserted into newspapers as it always does on Thanksgiving, but the company said it has otherwise now completely phased out its weekly circulars. It has also stopped putting a digital version of it on its website. Instead, it has launched a top-deals section on its website and app so it can introduce multiple promotions during the week.

With Thanksgiving falling later on the calendar this year, there has been a lot of chatter about the six fewer days between Thanksgiving and Christmas this year. But Barry said she doesn't expect the compressed time to be a wrinkle this holiday since many consumers are starting their holiday shopping earlier than before. Also, she noted there are more next-day, same-day and in-store pickup options for consumers than in the past.

"Our point of view is that less days is much less relevant than it used to be historically," she said. "We like to joke and say there's still the same number of days between Halloween and Christmas."

Kavita Kumar • 612-673-4113