Best Buy’s sales, profit fall as consumer spending shifts

With tighter budgets, consumers shopped less at Best Buy stores this summer than they did last year.

The Richfield-based electronics retailer this morning said it earned $306 million in its second fiscal quarter ended July 30, a 58% drop from a year ago. Executives last month lowered expectations set earlier this year.

“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 were up more than 3% in Tuesday morning trading.

“I think that you are seeing today is a little bit of relief from the investment community that things weren’t worse,” said Joe Feldman, a senior managing director and 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.

In June, foot traffic to Best Buy stores dropped more than 15% compared to the same time a year ago and nearly 20% compared to in 2019, according to data firm Placer.ai.

Despite the dips, Best Buy’s revenue is still better than what they were pre-pandemic when revenue was $9.5 billion for the quarter.

Looking ahead to the fall, Best Buy executives expect comparable sales to decline at an even steeper rate than this summer, but they maintained their full-year comparable sales decline of around 11%.

Retailers have seen consumers looking for cheaper necessities in the face of high inflation. During a call with analysts, Barry said the company expected a downturn in sales compared to last year due to the lack of stimulus dollars and a shift in consumer purchases to experiences like travel over goods. But, the large price jump in everyday items like food was bigger than expected.

Popular categories like computing and home theater have had some of the larger declines in sales, Barry said. Best Buy is also seeing more people trade down while shopping and look for discounts. High demand in the pandemic meant Best Buy didn’t need to cut prices as much, but now its promotions and discounts are back at pre-pandemic levels.

“It just seems like people are trying to just get food on the table and pay for gas to get to work,” said Feldman of Telsey Advisory Group. “And so discretionary [spending] has slowed down just broadly speaking but electronics in particular you’ve seen that.”

However, Best Buy’s inventory level has remained relatively healthy unlike many other retailers who are struggling with bloated inventories of slow-selling products, Feldman noted.

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. Executives expect additional charges through the year to restructure, which would suggest more staff cuts could be on the way.

Leave a Comment

Your email address will not be published.