Shares of Best Buy (NYSE: BBY) are down over 5% this week after the retailer reported a 13% drop in sales for the second quarter on Tuesday as consumers grew weary of inflation-driven price increases.
How Did Best Buy Perform in Q1?
Despite the sales drop, the electronics retailer reaffirmed its full-year forecast. For the last quarter, Best Buy reported revenue of $10.33 billion beating the consensus estimate of $10.24 billion, according to Refinitiv. Adjusted earnings per share (EPS) came in at $1.54, topping the consensus estimates of $1.27 per share.
In late July, Best Buy lowered its projection for sales and profits, citing a decreased demand for consumer electronics as a result of rising petrol and grocery prices. The business anticipates an 11% decline in same-store sales for the January-to-January 12-month period.
“We are clearly operating in an uneven sales environment,” CEO Corie Barry said in a news release.
Barry also added that the company will strive for long-term growth and that they are “focused on balancing our near-term response to difficult conditions and managing well what is in our control”.
Best Buy’s quarterly results come as no surprise given the fact that consumers were spending a lot more money on home appliances during the pandemic and lockdowns, which led to a 20% increase in sales last year. But now, in post-pandemic times, more money is being spent on vacations and outdoor activities.
Compared to the previous year Best Buy’s quarterly net income decreased from $734 million, or $2.90 per share, to $306 million and $1.35 per share respectively.
The largest declines happened in computer technology and home theater sales. According to Barry, who was speaking on the results call, lower-income families are upgrading to cheaper TVs or planning their purchases around discounted sales periods.
Nevertheless, she asserted, consumers are prepared to spend extra for some name-brand products when it comes to gaming consoles and cellphones.
Same-store sales, a crucial indicator that measures sales in both online and in-store locations, decreased by 12.1% from the prior year’s equivalent period, but still performed better than Best Buy’s initial forecast of a 13% decline for the quarter.
Although the company did not disclose an exact forecast for the third quarter, CFO Matt Bilunas believes that Q3 sales will decrease even more than in Q2.
As other retailers like Walmart and Target had to price down products to attempt to move them off shelves, Barry claimed that Best Buy has carefully monitored its inventory to prevent it from being left with surplus items. Inventory was down 6% at the end of the second quarter compared to the same time last year, she said.
However, Barry did express her concerns that Best Buy sales are being hurt by rivals who offer greater discounts and promotions on a wide variety of products. The sales decline forced the company to put a stop to share buyback. Additionally, a reorganization project is underway, which has resulted in retail staff being laid off.
According to Best Buy, the majority of the $34 million restructuring budget is spent on termination benefits, with the intention of spending even more in the upcoming months, but it remains unclear if this would result in further layoffs.
Best Buy shares are down over 30% YTD with a market value of nearly $16 billion.
Summary
Best Buy shares are trading lower this week despite the retailer reporting adjusted EPS and comparable sales for the second quarter that beat average analyst estimates.
