Best Buy stock is falling as it posts a broad decline in sales during the third quarter
Consumers are pulling back on discretionary goods, leading to lower wattage in Best Buy’s (BBY) third-quarter results.
Shares of the electronics retailer fell more than 4% early Tuesday, after the company reported mixed earnings results with net sales falling less than expected.
Consumers are under pressure from headwinds such as rising interest rates, returning student loan payments, credit card debt, and dwindling savings.
Net sales were $9.76 billion, less than the expected $9.90 billion. Sales of appliances, consumer electronics, computers and cell phones declined, but the company saw strength in its entertainment products.
International sales saw a better-than-expected decline of 1.90%.
In the statement, Best Buy CEO Corey Barry said: “These results demonstrate our continued and strong operational execution as we navigate the near-term sales pressures our industry has experienced over the past few quarters.”
“In the more recent macro environment, consumer demand has been more variable and difficult to predict,” she added. In a call with investors, it also pointed to a decline after electronics sales rose during the pandemic, and pressure from “a shift back to services outside the home, such as travel and entertainment, and inflation.”
Dividend distribution:
Here’s what Best Buy reported, compared to Bloomberg consensus data:
Adjusted earnings per share: $1.29 vs. $1.18 expected
Net sales: $9.76 billion versus $9.90 expected
Total US sales: -7.30% versus -5.98% expected
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Hardware: -15.30% versus -8.20% expected
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entertainment: 20.60% versus 5.67% expected
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Consumer Electronics: -9.50% vs. -6.00% expected
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Computers and mobile phones: -8.30 vs. -6.40% expected
international: -1.90% versus -4.19% expected
Inventory for the third quarter was 4% higher year-over-year, but CFO Matthew Bellonas said nearly $600 million in inventory receipts came in a few days later than expected last year, moving its numbers from the third quarter to the fourth quarter. . Therefore, inventory numbers decreased by 4%, excluding this factor.
When it comes to the holidays, Barry told Yahoo Finance on a media call that “we’re balancing those inventory levels against the current sales trends that we’re seeing,” but it appears his current inventory is in a good place.
The company is reviewing its real estate portfolio. It closed 24 stores last year, and has closed nearly 100 locations, or roughly 10%, in the past five years.
In the near term, Best Buy expects to close about 15 to 20 stores a year as it looks to modernize its stores and “scale up” its traditional gaming spaces, as PC gaming continues to see growth. It makes way for new offerings such as Oura rings, projectors, e-bikes, scooters and home furnishing products from Lovesac. Barry said the company is seeing “tremendous growth” in electric scooters.
The company is also looking to experiment with store formats. “We plan to open a few smaller stores in overseas markets to test the impact of adding new locations and geographies where we have no previous physical presence and our omnichannel sales penetration is low,” Barry said on the call.
Looking ahead, Best Buy lowered its financial guidance for 2024, for the 12 months ending in January 2024. Revenue for the year is now expected to be in the range of $43.1 billion to $43.7 billion, compared to previous guidance of $43.8 billion to $44.5 billion.
Sales are expected to decline by 6.0% to 7.5%, compared to the previously expected decline of 4.5% to 6.0%.
But the retailer may see the bottom.
“After two years of declines, we believe the consumer electronics industry should see more stability next year and perhaps growth in the latter half of the year… We believe it is poised to grow in the coming years, benefiting from a materially larger installation base and desire,” Barry said. The constant need to replace technology with age.
The company is optimistic heading into the holidays, and has so far seen better year-over-year sales in the first weeks, according to Barry.
“(Best Buy) is geared for the deal-focused customer with promotions and deals for all budgets, new shopping experiences, expanded product assortment, and fast, free fulfillment,” she said in the statement.
Factors that the company believes could lead to higher sales compared to last year include improvement in home theater and TV sales, and a continued trend of strong performance for entertainment products. In the computing category, laptops are expected to take off, while gaming continues to gain ground.
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Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on Twitter at @Brooke De Palma Or email her at bdipalma@yahoofinance.com.
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