Consumers are pulling out their discretionary products, dampening the power of Best Buy’s (BBY) third-quarter results.
Shares of the electronics retailer fell more than 4% early Tuesday, after the company posted mixed earnings results with lower-than-expected net sales.
Consumers are under pressure from headwinds such as higher interest rates, defaulted student loan payments, credit card debt and dwindling savings.
Net sales amounted to $9.76 billion, less than the $9.9 billion expected. Sales of home appliances, consumer electronics, computers and mobile phones fell, but the company saw strength in its entertainment products.
International sales experienced a better-than-feared drop of 1.90%.
In the statement, Best Buy CEO Corrie Barry said, “These results demonstrate our continued strong operational execution as we navigate through the near-term sales pressure our industry has been experiencing over the past few quarters.”
He added: “In the most recent macroeconomic environment, consumer demand has been even more uneven and difficult to predict.” In a call with investors, he also alluded to a pullback after electronics sales surged during the pandemic, and pressure from a “return to out-of-home services, such as travel and entertainment, and inflation.”
The earnings breakdown:
Here’s what Best Buy reported, compared to Bloomberg consensus data:
Adjusted EPS: $1.29 vs. $1.18 expected
Net sales: $9.76 billion vs. $9.90 expected
Total US Sales: -7.30% versus -5.98% expected
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Accessories: -15.30% compared to -8.20% expected
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Entertainment: 20.60% versus 5.67% expected
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Consumer electronics: -9.50% versus -6.00% expected
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Computing and mobile phones: -8.30 versus -6.40% expected
International: -1.90% versus – 4.19% expected
Inventory for the third quarter was 4% higher year over year, but Chief Financial Officer Matthew Bilunas said nearly $600 million in inventory receipts arrived a few days later than expected last year, moving his third-quarter numbers to the fourth quarter. Therefore, inventory numbers are down 4%, excluding that factor.
When it comes to the holidays, Barry told Yahoo Finance in a media call that “we’re balancing those inventory levels with the current sales trends we’re seeing,” but he feels his current inventory is in a good place.
The company is rethinking its real estate portfolio. It closed 24 stores last year and closed nearly 100 locations, or about 10%, over the past five years.
In the short term, Best Buy expects to close 15 to 20 stores per year as it looks to renovate its stores and “right-size” its brick-and-mortar gaming spaces as PC gaming continues to see growth. It is making room for new offerings like Oura rings, projectors, electric bikes and scooters, and Lovesac home decor products. Barry said the company is seeing “phenomenal growth” in electric scooters.
The company is also looking to experiment with store formats. “We plan to open some smaller stores in out-of-state markets to test the impact of adding new locations and geographies where we have no prior physical presence and our omnichannel sales penetration is low,” Barry said on the call.
Looking ahead, Best Buy lowered its guidance for fiscal 2024, for the 12 months ending January 2024. Revenue for the year is now expected to reach between $43.1 billion and $43.7 billion, compared to previous guidance of $43.8 billion to $44.5 billion.
Sales are expected to see a drop of 6.0% to 7.5%, compared to the 4.5% to 6.0% drop previously expected.
But the retailer could be seeing the bottom.
“After two years of declines, we believe the consumer electronics industry should see further stabilization next year and possibly growth in the second half of the year… we believe it is poised to grow in the coming years, benefiting of a materially larger installed facility”. base and the constant desire and need to replace technology as it ages,” Barry said.
The company is optimistic heading into the holidays and has so far seen better year-over-year sales in the first few weeks, according to Barry.
“[Best Buy is] prepared for a customer who is very focused on business, with promotions and offers for all budgets, new shopping experiences, a greater variety of products and fast and free fulfillment,” he said in the statement.
Factors that the company believes could drive higher sales compared to last year include an improvement in television and home theater sales, continuing a trend of strong performance by entertainment products. In the computing category, laptops are expected to see great success, while gaming continues to be strong.
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Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on Twitter at @Brooke DiPalma or email him at bdipalma@yahoofinance.com.
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