Best Buy shoppers on tight budgets scoured sales and hunted for low prices, eroding the company's sales and profits this summer.
Best Buy's sales, profits fall as consumer spending shifts
Second-quarter profit was less than half what it was a year ago.
August 30, 2022 at 9:55PM
On Tuesday, the Richfield-based electronics retailer said it earned $306 million in its second fiscal quarter that ended July 30, a 58% drop from a year ago. Executives last month lowered expectations for investors.
"We expected our financial results to be softer this year as we lapped some of the record sales volume that we have seen: however, the macroenvironment has been more challenged and certainly uneven than we had expected," Best Buy CEO Corie Barry said on a call with reporters.
Still, Wall Street expected worse. Best Buy's adjusted per-share profit of $1.54 came in above analysts' projection of $1.27. Revenue of $10.3 billion, while down about 13%, beat analysts' forecast of $10.2 billion.
Best Buy share prices rose 1.6% Tuesday.
"I think what you are seeing today is a little bit of relief from the investment community that things weren't worse," said Joe Feldman, a research analyst at Telsey Advisory Group.
A month ago, Best Buy executives said they expected comparable sales to decrease 13% from a previously forecast 8% decline. The new estimate was on target: Best Buy's comparable sales were down 12.1%. In last year's second quarter, comparable sales jumped almost 20% from the 2020 period.
Despite the dips, Best Buy's revenue is still better than what it was pre-pandemic, when revenue was $9.5 billion for the quarter.
Best Buy executives expect comparable sales to decline this fall at an even steeper rate than this summer. For the full fiscal year, they maintained a forecast for a comparable-sales decline of about 11%.
Computing and home theater have had some of the larger declines in sales, Barry said. Best Buy is also seeing more people look for discounts. High demand in the pandemic meant Best Buy didn't need to cut prices as much, but now its promotions are back at pre-pandemic levels.
"People are trying to just get food on the table and pay for gas to get to work," Feldman said. "And so discretionary [spending] has slowed down just broadly speaking but electronics in particular you've seen that."
Barry said that this holiday season retailers will likely see shopping behavior similar to holidays before the pandemic, with consumers gravitating toward sales and having less impetus to shop early.
Best Buy's inventory level has remained relatively healthy, down 6% compared to last year, unlike many other retailers who are struggling with backlogs of slow-selling products, Feldman noted.
But especially during the holidays, Best Buy will likely face a more competitive pricing environment because other retailers need to offload products, said Mike Baker, a senior retail analyst with D.A. Davidson Cos.
"Best Buy's inventory looks better … but it's offset by their competitors having too much consumer electronics inventory and therefore needing to mark their product down," he said.
Best Buy continues to experiment with different store models. Last month, it opened a small-format store near Charlotte, N.C., where customers can use their smartphones to shop. Best Buy has also rolled out more of its new outlet stores in which they offer refurbished and returned merchandise.
During the quarter, the retailer opened two new outlet stores and then another in August, bringing the number to 19 locations. It has also remodeled more than a handful of stores to offer more experiential shopping.
Earlier this month, Best Buy cut hundreds of in-store jobs to manage costs. In the quarter, the company incurred $34 million of restructuring costs, primarily termination benefits.
Barry said that the company hopes to retain a lot of its staff by putting them in other open roles in the company. Executives expect additional charges through the year to restructure, which could suggest more staff changes may be on the way.
"We are looking at everything end to end in service of a business model that has changed at an incredibly rapid pace," Barry said.
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