A quick dive:
- Best Buy reported another quarter of contracted sales, with computer sales down 10.4% and revenue fell 11.1% in the third quarter.
- The company’s gross margin was down just over 1.5 percentage points year-over-year, and operating income was down 45.5% from last year’s third quarter.
- Despite the fall, Best Buy’s 3Q results beat analysts and the company’s own forecasts, and the retailer lifted its full-year sales and profit guidance.
Best Buy’s third quarter, like the previous period, was marked by an intensification of discounting in the field of electronics, as well as a decrease in consumer spending. Demand for electronics has fallen from pandemic highs and remains uncertain and uneven as households cope with historic inflation.
In a call with analysts, Best Buy CEO Corey Barry said price action in the industry has accelerated faster than expected, impacting the company’s margins and profits.
Barry noted that such promotional activity was virtually non-existent during the pandemic until this year. During the quarter, industry discounting returned to pre-pandemic levels, and in some areas was even more promotional than pre-pandemic. This is due to both the weakening of demand and the retail trade that continues to work inventory surplusesaccording to Barry.
Best Buy’s own inventory level was down 15% from last year’s third quarter. That’s partly due to how much holiday and other inventory Best Buy ordered in early 2021 as the industry navigated widespread and unprecedented supply chain backups. (Barry also said that this year some receipts came in later than expected, pushing them into the 4th quarter.)
Another area where the economic and consumer spending environment hurt the retailer was sales of Total Tech Support memberships, which Best Buy launched last year and is the foundation of retail strategy. Barry said total membership was below management’s initial expectations, although the company was “encouraged” by the overall pace of customer acquisition.
With Best Buy’s 3Q overall performance beating its (lowered) expectations, the company resumed share buybacks after a pause in 2Q when the retailer’s performance weakened. The company expects to buy back $1 billion of its own stock over the course of the year, CFO Matt Bilunas said in prepared remarks.
However, the company has also cut staff as it navigates a tougher macro environment. On the call, Bilunas said Best Buy had $26 million in restructuring costs in the third quarter. In the year to date, the company incurred $61 million in similar costs, most of which consisted of severance payments for an unspecified number of laid-off employees.
Overall, Best Buy’s results point to a discount-heavy holiday season for the retailer — something that was also reflected in other recent earnings, including Target. Barry also suggested that it could look more like holiday shopping before the pandemic, with less early shopping and a greater concentration on traditional shopping days around Black Friday.
Neil Saunders, managing director of GlobalData, noted in emailed comments that Best Buy’s third quarter “represented a modestly improved — or at least less bad — performance” than the second quarter, which sharp drop in sales. Saunders pointed to factors behind the drop in sales, including spending cuts as consumers find themselves under financial pressure, large purchases that were postponed at the start of the pandemic, and the return of more experience-based spending.
“None of these dynamics are under Best Buy’s control, so today’s numbers do not represent any major strategic weaknesses for the company,” Saunders said. “Indeed, our analysis shows that Best Buy continues to gain modest market share, therefore outperforming the market.”
https://www.retaildive.com/news/best-buy-third-quarter-earnings-profit-sales-slump/637148/ Best Buy’s third quarter ‘less bad’ than feared, even as sales and profits fall