With purchase of Yardbird, Best Buy seeks a bigger role in outdoor entertaining

Best Buy has decided to expand outside — literally — of its electronics base by purchasing the Twin Cities patio furniture company Yardbird.

Executives announced the move Tuesday as they discussed quarterly results that showed improving sales in the months leading up to the holiday shopping season.

"Because customers are looking to us to complete their solutions, we have been expanding our assortment in categories like outdoor living," Best Buy CEO Corie Barry said on a call with analysts. "This includes products like patio furniture, grills, fire pits and electric mowers, to name a few."

Earlier this month, Best Buy, which already sold a small variety of outdoor furniture, paid $85 million for St. Louis Park-based Yardbird.

"We are excited about the opportunity to use our expertise in merchandising and supply chain to scale this business, both online and in physical locations across the nation," Barry said.

Yardbird, started by Jay Dillon in 2016, began to incorporate recycled ocean plastic into products in 2018. Last year, its sales rose sharply at the onset of the pandemic as it relied heavily on e-commerce when its showrooms were forced to close.

Best Buy will start to sell Yardbird products online in the coming months. Yardbird will continue to sell its own selection online and in its own stores, located in the Denver, Detroit, Kansas City, Philadelphia, and Washington, D.C. areas as well as the Twin Cities.

Best Buy's latest comparable sales rose about 2% above last year's oversized, pandemic-influenced increases, and the retailer signaled it is working to keep stocked for the holidays. Its profit was up around 28% to $499 million, or $2 a share. Revenue grew a half-percent to a record $11.9 billion for the quarter finished Oct. 30, the third of its fiscal year.

But the Richfield-based company's shares tumbled 12% Tuesday as investors focused on a slight narrowing in its gross profit margin and a flat expectation for near-term sales growth.

Comparable sales for August, September, and October built on the historic gain of 23% in the same period last year, when homebound workers and students sought out tech accessories and entertainment devices.

Best Buy's inventory is up 15% compared to last year. Even so, executives said there have been some availability issues in categories like appliances, gaming, and mobile phones.

"While we have faced and continue to face supply chain challenges including delays and higher costs, we are proactively navigating a situation that we have been dealing with for several quarters," Barry said.

Best Buy executives said they expect comparable sales in the November-January period to range from a drop of 2% to a gain of 1%.

Appliances, home theater and mobile phones were some of the biggest sellers in the latest quarter. For some items like appliances, the retailer increased prices to offset rising costs, said Matt Bilunas, Best Buy's chief financial officer.

When the company last reported results in August, executives said they estimated comparable sales for the full fiscal year would increase 9% to 11%. On Tuesday, they raised that outlook, saying full-year comparable sales would increase 10.5% to 11.5%.

Best Buy recently announced the $400 million acquisition of U.K.-based patient monitoring platform Current Health, which expands on its plans to invest more in health care and specifically in technology to assist consumers as they age. Tuesday's Yardbird announcement shows the retailer means to continue to grow its categories of products, which now also include items like camping gear.

"On the surface it's kind of odd because you just think 'what's an electronics company doing purchasing a company that makes furniture for the yard?'" said Neil Saunders, managing director of GlobalData, in an interview. "But there's a logic to it. ... Best Buy knows it has to diversify a little bit away from just electronics."

The swoon in the company's shares this morning matches a pattern often seen around the company's results announcements, particularly after periods of strong gains. Through Monday, Best Buy's shares were up about 23% from three months ago.

Saunders said he didn't think the dropoff was warranted. "[Best Buy] really has just gone back to what growth was before," he said. "It's a win. A loss would be to start losing these customers and sales but they have not."

Best Buy, like many other big-box retailers including Target, started holiday sales early this season and decided to stay closed Thanksgiving Day.

"We are ready for more customers in our stores this Black Friday and given the patterns we've seen thus far I would expect there to be more than last year," Barry said.