Earnings reported on Tuesday beat analysts’ forecasts, driving Best Buy shares higher in afternoon trading.
NEW YORK – Best Buy, based in Minnesota recorded a decline in profits and sales in the second fiscal quarter as the nation’s largest consumer electronics chain grappled with weakening consumer demand for gadgets and high costs impacting its supply chain.
But the results, announced on Tuesday, exceeded analysts’ expectations. That sent shares up more than 2% early in the afternoon.
Best Buy’s sales at the height of the pandemic were fueled by overspending by shoppers splurging on gadgets to help them work from home or help their children learn virtually. Last year, spending was also boosted by government stimulus measures. So, like many retailers, Best Buy entered the year expecting weaker financial results than in 2021 as stimulus waned and shoppers adopted pre-pandemic lifestyles. more normal.
But soaring prices for basic necessities like food and gasoline have forced families to become more cautious. They do without new clothes, electronics, furniture, and almost anything not absolutely necessary. And spending habits have changed faster this year than expected. After being cooped up at home during the pandemic, Americans seemed to shift almost overnight to dining out, movies and concerts and traveling.
It has also caused businesses to step up discounts to get rid of excess inventory as they head into the critical fall and holiday seasons. As a result, it has impacted businesses across all types of retailers, from Target to Macy’s.
“There’s never been a time like this,” Best Buy CEO Corie Barry said in response to a reporter’s question about what feels different now. unlikely anything we’ve seen in decades.”
Barry said inflationary pressures on food, rent and gasoline are forcing buyers to lower prices in certain categories like televisions. However, when it comes to mobile phones, they are replacing them with the same or similar models. They also focus on deals, she added.
Barry noted that inventories for the second quarter were actually down 6% from the same period a year ago. But it is up about 16% from the pre-pandemic fiscal year 2020.
Barry told reporters on a media call on Tuesday that the company had healthy inventory levels, but was competing with excess inventory in the retail sector. This aggressive industry-wide reduction has prompted Best Buy to cut prices as well, and shoppers will see reductions begin earlier for the holiday shopping season. Rising supply chain costs and declining margins from its membership program also weighed on its profit rate in the quarter.
Minneapolis-based Best Buy warned in July that sales would fall more than expected. He had forecast that this year’s sales at stores open at least a year would fall 11%, much more than the 3% to 6% decline originally forecast in May. For the fiscal second quarter, it said in July that comparable sales would be down 13%.
Best Buy said net income fell 60% to $306 million, or $1.35 per share, for the three months ended July 30. That compares to $734 million, or $2.90 per share, a year ago. Revenue fell 13% to $10.33 billion.
Analysts had expected $1.27 per share on sales of $10.27 billion, according to FactSet.
Comparable sales – sales at stores open for at least a year – fell 12.1% from a 19.6% increase a year ago.
The national gross margin rate was 22.0% compared to 23.7% last year, in part because the company increased discounts to move inventory.
Minneapolis-based Best Buy warned in July that sales would fall more than expected. He had forecast that this year’s sales at stores open at least a year would fall 11%, much more than the 3% to 6% decline originally forecast in May. For the fiscal second quarter, it said in July that comparable sales would be down 13%.
For the year, Best Buy is sticking to its previous forecast of an 11% drop in comparable sales.
Looking ahead to the fiscal third quarter, he expects same-store sales to decline slightly more than the 12.1% drop reported in the fiscal second quarter.
The shares rose $1.66 to $75.36 in the early afternoon.
