Best Buy Tuesday beat Wall Street’s quarterly earnings expectations as demand for expensive consumer electronics turned out to be better than feared due to inflation.
The consumer electronics retailer, which lowered its guidance this summer, has reiterated its guidance for the holiday quarter. It raised its full-year guidance to reflect the hit, saying it expects like-for-like sales to decline by about 10%.
The company’s shares rose more than 8% in premarket trading on Tuesday.
Here’s how the retailer fared for the three-month period ending October 29. compared to what Wall Street expected, according to a Refinitiv poll of analysts:
- Earnings per share: $1.38 adjusted against expected $1.03.
- Income: $10.59 billion vs. expected $10.31 billion
While Best Buy’s quarterly results were better than expected, demand has fallen since the peak of the pandemic, with consumers turning to its stores for home theaters, computer monitors, kitchen appliances and more while working, playing and cooking at home.
Net sales for the fiscal third quarter were down about 11% from $11.91 billion year-on-year in the third quarter. Net income fell to $277 million, or $1.22 per share, from $499 million, or $2 per share, a year earlier.
During a phone call with investors, CEO Corey Barry said sales were down across most Best Buy product categories, with the biggest declines in the Computing and Home Theater segment. Compared to the same quarter in 2019, however, its computing revenue is up 23%, while home appliances revenue remains 37% higher, she said.
She said the retailer “saw relatively stable behavior from our shoppers” this quarter, even as consumers faced high prices at the grocery store and at the gas station. But she added that shoppers are showing a lot of interest in the sale.
“In consumers, we are also seeing savings shrinking and credit use rising,” she said. “And value clearly matters to everyone.”
Best Buy is looking at more uncertain sales this holiday season. Some consumers suffering from inflation are ditching discretionary items and spending more money on essentials and experiences. This summer, the company joined other retailers in cutting their forecasts. At the time, the company said it expected same-store sales to fall by about 11% over a 12-month period ending in January.
A month after Best Buy warned of declining sales, it has cut jobs across the country.
However, so far the company has exceeded its expectations.
Like-for-like sales fell 10.4%, according to FactSet, less than the 12.9% decline expected by analysts. The key metric, also called single store sales, tracks sales online and in stores that have been open for at least 14 months.
It was also a smaller drop than the retailer expected. Best Buy did not provide specific third-quarter comparable sales guidance, but its chief financial officer Matt Bilunas warned that the second-quarter drop would exceed 12.1%.
The company said it has resumed share buybacks, which it put on hold when it lowered its outlook in July. Best Buy said it plans to spend about $1 billion on share buybacks this year.
CEO Barry said the company is tightly controlling its inventories, which are down 14.7% year on year. The retailer had anticipated lower demand and had overcome a year-old period of deliveries arriving both earlier and later due to supply chain issues.
Inventory is an important metric in retail, as many companies cope with a surplus of unwanted items and are forced to discount items, cancel orders, or pack and stock items.
Barry said the holiday shopping pattern is also changing to a more typical pre-pandemic one. In a press release, she said the retailer expects shoppers to spend more on Black Friday, Cyber Monday and the two weeks leading up to Christmas.
Best Buy’s stock is down about 30% this year, trailing the S&P 500. The stock closed Monday at $70.83, down almost 2%. The market value of the company is $15.95 billion.