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Best Buy Says Softer Demand Is Sticking Around, But Company Isn't Planning for a Recession

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  • Best Buy's quarterly revenue declined, but still topped Wall Street's expectations.
  • Same-store sales fell by 8% versus the year-ago period, a better performance than the 8.6% drop analysts projected.
  • Investors have scoured retailers' earnings for signs about the health of the American consumer.

Best Buy reported lower sales for its fiscal first-quarter and the retailer cut its outlook for the year, citing softer demand that doesn't appear to be letting up.

"That trend has continued into the beginning of Q2 and it does not appear that it will abate in the near term," Best Buy CEO Corie Barry said on an analyst call Tuesday.

The economic landscape has worsened since the company provided guidance at an investor day earlier this year. But while Best Buy is factoring that into its outlook, Barry said the company isn't "planning for a full recession."

Even as consumers watch their budgets, she said, Best Buy is selling merchandise that has become more central to their lives. Sales in the company's fiscal first quarter didn't decline as sharply as Wall Street had expected.

"Consumer electronics over time is a stable industry," Barry said. "The last two years have clearly underscored the importance of tech in people's lives, so I think it's important for us to have that as a backdrop."

Shares of the company closed at $73.47 on Tuesday, up 1.21%.

Here's how the retailer did in the three-month period ended April 30 compared with what Wall Street was anticipating, according to a survey of analysts by Refinitiv:

  • Earnings per share: $1.57 adjusted vs. $1.61 expected
  • Revenue: $10.65 billion vs. $10.41 billion expected

Best Buy said it now anticipates full-year revenue ranging between $48.3 billion and $49.9 billion, compared with a prior outlook of $49.3 billion to $50.8 billion. It said same-store sales will decline between 3% and 6%, a bigger drop than the 1% to 4% decrease it previously forecast. It expects adjusted earnings per share in a range of $8.40 to $9.00, down from the prior outlook of $8.85 to $9.15.

Best Buy's quarterly net income fell to $341 million, or $1.49 per share, down from $595 million, or $2.32 per share, a year earlier. Excluding items, it earned an adjusted $1.57 per share.

Net sales fell to $10.65 billion from $11.64 billion a year earlier.

Same-store sales for Best Buy declined by 8% versus the year-ago period, a better performance than the 8.6% drop that analysts expected, according to FactSet.

Chief Financial Officer Matt Bilunas cited weaker computing and home theater sales for most of the decline. Comparable sales for services fell 12% in the fiscal quarter, he said, as customers joined Best Buy's membership program Totaltech and got warranties and installations included in the annual fee.

Scouring for clues about the consumer

Investors have scoured retailers' earnings for clues about the health of the American consumer amid soaring inflation. With Best Buy, some worried the company would be particularly vulnerable. It faced tough comparisons against a year-ago quarter of Covid pandemic-fueled demand for computer monitors, kitchen appliances and more. That caused same-store sales to jump in that period by 37.3%.

Best Buy also told Wall Street at an investor day in March that sales would cool after two years of elevated demand. But Bilunas said at the time that the company anticipated demand above pre-pandemic levels over the next several years.

Walmart's and Target's earnings reports heightened investors' unease last week. Both big-box retailers reported sales growth in the fiscal first quarter, but missed Wall Street's earnings expectations as fuel and freight costs ate into profits and demand for higher margin, discretionary purchases sank. Target CEO Brian Cornell said customers skipped over bulky items like TVs and kitchen appliances — products that Best Buy also sells.

The retailers' results helped lead to a major sell-off on Wall Street last week, which dragged Best Buy's stock to a 52-week low on Friday.

The tempered expectations likely set the stage for Wall Street's positive reaction to Best Buy's results on Tuesday morning, even as the retailer cut its forecast and warned of tougher times ahead.

Like other retailers, Best Buy is "seeing some increasing signals of concern," Barry said on a call with reporters. Consumers are putting more money toward experiences like booking vacations. Their dollars aren't going as far as fuel, food and other basics cost more. Climbing mortgage rates and rising debt levels are adding pressure, too.

People are "pulling back at a faster, deeper pace than we had initially assumed," she said.

Best Buy has seen its mix of customers change, too, she said. Earlier on in the pandemic, the company drew more low-income and female customers. Its stores and website are now attracting a larger number of higher-income and male shoppers again.

More promotions, fewer employees

Best Buy has shaken up the makeup of its workforce, the look of its stores and the mix of merchandise during the pandemic.

It now has fewer employees than when the global health crisis began — a level that Barry said is appropriate as more sales move online. The company also plans to do about 45 remodels this year across its more than 1,000 stores and will open outlet stores in Chicago, Houston and Phoenix. And its expanded product assortment now includes high-tech beauty gadgets, patio furniture and exercise equipment.

The company is also looking to grow its services business and strengthen ties with customers. Last year, it launched Totaltech, a membership program that costs $199.99 and includes tech support services and an extended window for returns and exchanges. Barry declined to say how many members Totaltech has so far, but said the program will "drive frequency and share of wallet overtime."

Best Buy also has a team that provides products and services for businesses such as homebuilders and hospitality companies. Barry said revenue from that unit rose 15% in the quarter compared with a year ago and is up more than 70% on a two-year basis.

On the call with reporters, Barry said Best Buy has always had a range of price points to appeal to value-conscious customers but that promotions have returned for deal seekers. Earlier in the pandemic, retailers including Best Buy ran fewer promotions as spending spiked and supply chain snarls led to tighter supplies.

Barry also noted that technology plays a different role in people's lives compared with the recession in 2008. American homes on average now have 12 connected devices, she noted.

"That to me infers this is equipment that you need to operate your life," Barry said.

Read the company's earnings release here.

Correction: Excluding items, Best Buy earned an adjusted $1.57 per share, and its net sales fell to $10.65 billion. An earlier version misstated the figures.

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