Dive Brief:
- Best Buy comparable sales fell 2.3% in the fourth quarter while total revenue fell just short of management's expectations. Operating income fell by more than 20% from a year ago to $803 million.
- During an investor presentation, Chief Financial Officer Matt Bilunas attributed the sales decline to constrained inventory availability, including in mobile phones and computing, as well as the spread of the omicron variant of COVID-19 during the period.
- For the full fiscal year, Best Buy hit record revenue levels, with comps up by 10.4%, on top of 9.7% growth in the year before. The retailer is eyeing revenue of more than $56 billion by 2024 (Best Buy's fiscal 2025).
Dive Insight:
Consumer electronics as a category was among the hardest hit by supply chain snags throughout the holiday period, with a global shortage of semiconductors creating problems for all kinds of products.
That said, the retailer may have lost sales to larger generalist rivals with deeper pockets and supply chain agility.
"During the holidays, consumers are not prepared to wait for things to come back into stock, so they trend to go elsewhere," Neil Saunders, managing director of GlobalData, said in emailed comments. "This is exactly what happened to Best Buy with some shopper leakage to other retailers like Amazon, Target and Walmart — especially over Black Friday and Cyber Weekend."
Best Buy's holiday period was also set against strong growth in 2020, when the retailer's omnichannel offering helped it post a 12.6% comp increase for a holiday period defined by a deadly rise in COVID-19.
Despite the declines of last year's Q4, CEO Cory Barry pointed to opportunities for the company ahead in services, consumer health technology, advertising and generally the growing presence and necessity of technology in consumers' lives, which the pandemic has accelerated.
One of the linchpins of Best Buy's strategy in the years ahead is its recently rolled out Totaltech membership.
In the near term, the company is spending money building it out. Bilunas said that the suite of services and benefits, and the cost to fulfill them, is driving spending and having an impact on the company's bottom line.
Long term, Best Buy is betting that the membership, while less profitable than the retailer's past offerings, will attract more customers than previous membership options. In turn, the company hopes the services and benefits of Totaltech will incentivize those customers to do more of their tech buying from the retailer and drive sales incrementally.
Best Buy is also investing in its growing health and advertising businesses as it tries to create an ecosystem for consumers and the vendors trying to reach them.
Barry also touted Best Buy's employee expertise and services as a differentiator in its category. At the same time, the company has restructured its operations to prepare for more digital shopping.
Current and former employees told Retail Dive last year that stores have lost knowledgeable staff as Best Buy made cuts to full-time positions in stores. At the same time, remaining employees have said they felt stretched as the company has asked them to take on more tasks and work functions. Executives said during the presentation that store productivity and efficiency has improved and Best Buy has an 86% retention rate.
Over the year ahead, Best Buy will run up against some tough comparisons as it laps a year marked by government stimulus and surging consumer demand. Management expects comps to fall by 1% to 4% for the fiscal year.
"Overall, we remain confident about Best Buy," Saunders said. "It is a solid, well-run business with a clear vision. However, there is no denying that it is now in a more challenging place."
