In a two-year span, Best Buy repeatedly remade itself as it responded to consumers grappling with how to stay connected via technology in a global pandemic.
Best Buy prepares for a challenging 2022, expects growth after that
Executives at the Richfield-based electronics retailer forecast a drop in sales and profits this year.
March 4, 2022 at 2:58PM
Now, the Richfield-based electronics retailer just started a fiscal year in which executives expect sales and profits to decline.
By spending now on store remodels, new categories of products and customer services, Best Buy executives said Thursday that the company in a year or two will be in a better spot than it was before the pandemic.
"While we think there is a bit of a step back next year, all of this massive interest in the industry, the new ways that people are using technology, the innovations that are happening in spaces like metaverse ... all of those we believe start to create that ramp as we get on the other side," Best Buy CEO Corie Barry said Thursday.
On Thursday, Best Buy reported that its comparable sales grew 10.4% for the fiscal year it just finished in January. That was way better than the flat performance executives forecast at the start of 2021. Revenue rose 10% to $51.8 billion, a record.
But in November, December and January, performance slumped compared with the same period a year earlier. Best Buy's holiday sales and profits were constrained by product shortages and reduced store hours as the omicron variant of the coronavirus swept the country in January.
In that fiscal fourth quarter, the company's profit fell 23% and sales were down 3%. Best Buy earned $626 million, or $2.62 a diluted share. That was down from $816 million, or $3.10 a share, a year earlier.
For the new fiscal year that began last month, Best Buy executives expect business to continue to taper. Best Buy anticipates comparable sales to decline 1 to 4%. Executives said growth was expected to bounce upward by its 2025 fiscal year, which covers most of calendar year 2024, with revenue of $53.5 billion to $56.5 billion.
Best Buy shares rose more than 9% Thursday.
Much of the reason for the optimism of the company's executives is that, during the pandemic, technology became even more integrated into consumers' lives.
"Technology is extending into all aspects of our home and we have all grown to depend on it," Barry said.
As technology usage deepens, consumers will need more assistance to replace and repair and learn about tech items, services that Best Buy is in an unique position to serve, Barry said.
Anthony Chukumba, a Chicago-based analyst with Loop Capital Markets, who has followed Best Buy for years, said the specialty retailer stands to continue to gain market share.
"Consumer electronics are becoming increasingly ubiquitous in our everyday lives and [Best Buy] is the last man standing," he said. "So when there are new technologies that people want to learn about and maybe buy, they are going to go to Best Buy."
During the pandemic, Best Buy experimented with several different store layouts in markets across the country. In the Twin Cities, the electronics chain changed several stores so that they had more space to process orders. In Charlotte, N.C., Best Buy tried a range of store types of different sizes.
Last year, Best Buy introduced the concept of a "virtual store" operated out of one of its distribution centers, where customers can see product demonstrations and talk to staff online. It also introduced an outlet store concept with discounted products.
In Houston, Best Buy has piloted an experiential store that allows customers to interact more with products. Best Buy expects to remodel about 50 stores in the next fiscal year into experiential stores with the goal of having about 300 by fiscal year 2025.
Best Buy has also launched into new product categories including outdoor living, personal electronic transportation like e-bikes and mopeds, and health technology. In November, Best Buy bought St. Louis Park-based patio furniture company Yardbird for $85 million. It also expanded its selection of electronic transportation items and began to include services for the devices.
Also last year, Best Buy announced the $400 million acquisition of U.K.-based patient-monitoring platform Current Health as it continued to grow its health technology expertise. It was just the latest addition to Best Buy's health business, which has steadily grown over the last few years.
A large investment that Best Buy is banking will pay off in the long run is Best Buy Totaltech, a new $200 customer service membership that launched last fall that provides Geek Squad tech support, extended warranties, exclusive pricing and other perks.
Since it launched in the fall, about 1 million customers signed up, adding to 3 million that were rolled over from other Best Buy memberships.
But Totaltech is not yet as profitable as some of those older service programs. The added services it provides take away from other revenue streams, such as extended warranties and installation. But executives say Totaltech membership will help retain customers and lead them to buy more products from the company.
"Totaltech is a near-term investment to drive long-term value," said Matt Bilunas, chief financial officer for Best Buy.
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