Best Buy's sales and profits continue to deteriorate amid electronics recession

The recession for electronics continued this spring, shown in Best Buy's same-store sales dropping yet again — this time by double digits.

But it's possible consumers could start clamoring for popular video games and wanting to replace other gadgets by the end of the year.

Best Buy on Thursday reported its first-quarter same-store sales fell a little more than 10% from 2022. Total sales of nearly $9.5 billion for February, March and April were lower than the $10.6 billion the Richfield-based company reported the same time last year and came in just a few million shy of what Wall Street expected. The numbers were just a little more than 3% better than what Best Buy reported back in May of 2019.

It's a trend that has persisted for Best Buy for the past year and that company leaders predict will remain until electronics shoppers need to update the devices they bought during the pandemic.

"We've been seeing a consumer who is — whether or not you call it a recession — exhibiting some recessionary behaviors, depending on the different category that you're talking about," Best Buy CEO Corie Barry said in a call with analysts.

The company said it earned $244 million, down more than 28% from $341 million a year ago. Its adjusted per-share profit, which doesn't include non-cash expenses, amounted to $1.15, which was more than the $1.11 analysts forecasted.

Share prices were up more than 3% Thursday, likely because Best Buy's dipping results were similar to what its leaders had projected.

"I think that there was some level of concern that they would miss and lower [expectations,] given the fact that the macro continues to be a massive headwind for them. I think there was some relief that that was not the case," said Anthony Chukumba​, an analyst at Chicago-based Loop Capital Markets.

Electronics sales have been on the decline for the past year at many retailers. as consumers are reluctant to spend money outside of groceries and other necessities while dealing with high inflation. And many households still have a hoard of newish gadgets they bought when they had to work, study and play from home during the pandemic.

Electronics sales growth projections are now rightsizing back to pre-pandemic expectations, said Liza Amlani, founder of the Retail Strategy Group. But Best Buy still sees softness across many of its core categories, such as computing, home theater, appliances and mobile phones.

"Specifically in [consumer electronics,] given especially how much demand we saw through the pandemic, the consumer was going to make trade-off decisions, and it's a consumer that clearly when they're faced with record-high inflation vs. 2020 in food, housing and fuel, that's going to drive those trade-off decisions," Barry said.

Last week, Target said its apparel, home and hardlines sales — which include sporting goods and electronics — experienced sales declines. Walmart saw comparable sales drop in the mid-single-digit range for general merchandise sales, which its leaders said reflected softness in discretionary categories, including home, electronics and apparel.

Electronics manufacturers are also feeling the pain. South Korean electronics company Samsung reported its operating profit tanked more than 90% in the first quarter of the year compared with 2022. At the beginning of 2023, Microsoft said it would lay off 10,000 workers.

However, Best Buy leaders said they see signs of life with customer demand reigniting. In the past few weeks, the new "The Legend of Zelda" game had a record-breaking launch on Nintendo Switch, and there has been a stronger-than-expected number of preorders for the new Asus handheld gaming device.

Best Buy leaders said they expect — possibly by the end of this year or sometime next year — the industry will stabilize and possibly grow as consumers update products such as mobile phones. As more innovative products come out and people decide to upgrade their devices, consumer electronics sales will eventually rebound, they said.

"What gives us confidence is understanding that there is a very large vendor community out there that is very interested in continuing to stimulate demand, continuing to create really cool solutions for our customers, and that over time, I don't see a world where we rely less on technology," Barry said.

Likely cell phones and tablets will be the first devices consumers will replace, Chukumba said.

"It's going to be a combination of the natural replacement cycle, and at some point, the macro getting better [that's going to provide Best Buy the lift it needs]," he said.

Best Buy will also likely see sales increase during the back-to-school shopping period and the holidays, Amlani said.

Best Buy still faces challenges, including increased competition from retailers such as Costco, Target and Walmart, Amlani said. The company hasn't been opening stores at a high rate, so it isn't doing as much to tap new markets, she said.

"Best Buy has a lot more competition," Amlani said. "Customers are more price-conscious."

Best Buy has closed about 70 large-format stores, or 7% of its portfolio, in the past three years with plans to shutter around 20 to 30 of its larger stores this year. And it will continue to close stores in the coming years.

At the same time, Best Buy has reduced its workforce by about 25,000 employees, or 20%. The company said Thursday that much of the workforce reduction made during the pandemic came through attrition and its decision not to backfill jobs.

Cutting nonprofitable stores makes sense, Amlani said, but at the same time, retailers must be careful not to cut too deep.

Despite the staff reduction, Best Buy, which is opening more outlet and experiential stores, said it added about 2 million more hours for customer-facing employees this year into its staffing plan.

"We are moving away from a one-size-fits-all approach to our stores and staffing to a market-based approach," Barry said.

"And depending on the needs of each market, we're adding, removing, shifting or arranging the number of associates and roles needed to better and more efficiently serve those customers and to allow for more localized flexibility."