Best Buy’s quarterly sales drop, inflation-weary consumers don’t hold back on spending

Best Buy said Tuesday that sales fell about 13% in the second quarter of the fiscal year, as the retailer felt a drawback from inflation-weary shoppers.

Shares of the company are up about 6% in early trading, as it reaffirmed its full-year guidance. Best Buy lowered forecasts in late July, saying it expects weak consumer electronics demand as people pay more for groceries and gas. The retailer expects same-store sales to decline about 11% for the 12-month period ending in January.

CEO Cory Barry admitted that the economic background is becoming more volatile.

“It is clear that we operate in an uneven sales environment,” she said in a press release. Barry added that the company “is focused on balancing our short-term response to challenging circumstances and managing well what is in our control” as it drives long-term growth.

Here’s what the retailer did in the three months ending July 30 compared to what Wall Street was expecting, according to a survey of analysts by Refinitiv:

• Earnings per share: $1.54, adjusted vs. Expect $1.27
• Revenue: $10.33 billion vs. $10.24 billion expected

The Best Buy quarter reflects a sharp change in consumer spending habits. A year ago, the retailer saw sales soar nearly 20% as shoppers bought televisions, laptops and more to maintain pandemic-fueled Covid habits like working from home and streaming movies.

Now, however, some of these patterns have faded as people return to the office or go on summer vacations. Some consumers forgo expensive and discretionary items because they are paying more for the necessities.

Best Buy’s quarterly net income fell to $306 million, or $1.35 per share, from $734 million, or $2.90 per share, a year earlier. Excluding items, he earned $1.54 per share.

Online and in-store sales that have been open for at least 14 months, a key metric known as same-store sales, are down 12.1% compared to the same period last year. That’s slightly better than Best Buy’s guidance, which forecast a decline of about 13% for the current three-month period.

CFO Matt Bellonas said in the company’s Tuesday statement that Best Buy expects a sharp decline in same-store sales in the third quarter. He did not give specific guidance, but said it would be more than the 12.1% decline reported in the second quarter.

Barry said the retailer has noticed that some shoppers are trying to increase the budget. Some, especially those from low-income families, are trading on low-priced televisions or buying timing for sales events, she told investors on an earnings call.

However, she said customers are willing to pay more for some brand-name items, such as smartphones and game consoles.

Retailers across the industry are dealing with an abundance of unwanted merchandise. For example, Walmart and Target have lowered their full-year earnings forecasts because they’re jotting items to try to get them off the shelves.

Barry said Best Buy has closely managed its merchandise to make sure it doesn’t get stuck with excess merchandise. At the end of the second quarter, it said, inventory was down 6% compared to the same period last year. It is up about 16% from the same period in 2019.

Even with low inventory levels, Barry said the company’s profits are under pressure as competitors discount an abundance of goods with more promotions.

With sales falling, Best Buy has paused share buybacks. It is also in the middle of a restructuring initiative, which included laying off store employees.

Best Buy said it has spent $34 million on restructuring efforts, with most of it spent on termination benefits, and it expects more in the coming months. It did not say whether that would include more layoffs.

As of Monday’s close, Best Buy shares are down about 27% so far this year. The stock closed Monday at $73.70, down less than 1%. The company’s market capitalization is about $16.6 billion.

Read Best Buy’s earnings statement here.