NEW YORK – Best Buy posted lower earnings and sales in the second quarter as the country’s largest consumer electronics chain grappled with flagging consumer demand for gadgets and high costs spreading through its supply chain.
But the results released on Tuesday beat analysts’ expectations. That sent shares up more than 2% in early afternoon trading.
Best Buy’s sales during the peak of the pandemic were fueled by outsized spending by shoppers who were spending on devices that helped them work from home or help their kids with virtual learning. Last year, spending was also boosted by government stimulus packages. Like many retailers, Best Buy went into the year expecting financial results to be weaker than 2021 as stimulus faded and shoppers adjusted to a more normal pre-pandemic lifestyle.
But rising prices for basic necessities like food and petrol have forced families to be more cautious. They forego new clothing, electronics, furniture, and almost anything else that isn’t strictly necessary. And spending habits have changed faster than expected this year. After being locked at home during the pandemic, Americans seemed to switch to spending on dinners, movies and concerts, and travel almost overnight.
That has also prompted companies to step up discounts to shed excess inventory as they head into the critical fall and holiday seasons. As a result, this took a toll on businesses at all types of retailers, from Target to Macy’s.
“There’s never been a time like this,” Best Buy CEO Corie Barry responded to a reporter’s question about what feels different now. “We have never seen consumer behavior driven by a staggering amount of government stimulus, stalled by geopolitical unrest unlike anything we’ve seen in decades.”
Barry said inflationary pressures on groceries, rent and gas are forcing buyers to trade at lower prices in certain categories such as televisions. However, when it comes to cell phones, they replace them with the same or similar models they had. They’re also focused on deals, she added.
Barry noted that inventories were actually down 6% in the second quarter compared to the year-ago period. But it’s about 16% higher than in fiscal 2020 before the pandemic.
Barry told reporters at a media briefing on Tuesday that the company has healthy inventories but is competing with excess inventory across the retail industry. These aggressive industry-wide discounts have pushed Best Buy to slash prices as well, and shoppers will see discounts starting earlier for the holiday shopping season. Higher supply chain costs and lower margins related to its membership program also impacted its win rate during the quarter.
Minneapolis-based Best Buy warned in July that sales would fall more than expected. It had forecast that this year’s sales in stores that have been open for at least a year would fall 11%, much more sharply than the 3% to 6% drop originally forecast in May. For the fiscal second quarter, it said in July that comparable sales would decline 13%.
Best Buy reported that net income for the three-month period ended July 30 fell 60% to $306 million and revenue declined 13% to $10.33 billion.
Analysts were expecting $1.27 per share on sales of $10.27 billion, according to FactSet.
Comparable sales — sales in stores open a year or more — fell 12.1%, compared with a 19.6% increase in the year-ago period.
Domestic gross profit rate was 22.0%, up from 23.7% last year, partly because the company increased rebates to move inventory.
Minneapolis-based Best Buy warned in July that sales would fall more than expected. It had forecast that this year’s sales in stores that have been open for at least a year would fall 11%, much more sharply than the 3% to 6% drop originally forecast in May. For the fiscal second quarter, it said in July that comparable sales would decline 13%.
For the year, Best Buy is sticking to its previous guidance of an 11% decline in comparable sales.
Looking ahead to the fiscal third quarter, the company expects comparable sales to decline slightly more than the 12.1% decline reported in the fiscal second quarter.
Shares rose $1.66 to $75.36 in early afternoon trading.
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