Best Buy soars on store traffic gains, e-commerce growth

Dive Brief:

Rising e-commerce sales and improving demand for home theater, connected home, wearable electronics and smartphones helped Best Buy handily beat third quarter expectations Thursday.
The electronics retailer reported Q3 net income of $194 million, or 61 cents per share, up from $125 million, or 36 cents per share in the year-ago period. Net sales rose 1.4 percent to $8.95 billion, beating the average analyst estimate of $8.85 billion.
Best Buy's Q3 same-store sales grew 1.8%, ahead of the Consensus Metrix forecast for a 1% rise. Increased traffic, higher average order values and higher conversion rates contributed to the results, the company said. Shares of Best Buy surged 8.2% immediately following the earnings release, Business Insider notes.

Dive Insight:

Amazon has been gunning for Best Buy’s number one spot in electronics retail, accounting for a whopping 90% of the $5.6 billion growth in consumer electronics sales posted nationwide in 2015, according to a note from Deutsche Bank analysts issued this summer. Five years ago, Amazon had 6.2% share and ranked No. 4 on the list of top 100 U.S. electronics retailers; today, it's No. 2 with 17.0% share, jumping ahead of Wal-Mart, according to Barron’s.

But Best Buy appears to be meeting that challenge, with results that have beat expectations in the last two quarters. U.S. e-commerce sales rose 24.1% to $881 million in Q3, accounting for 10.8% of the retailer’s sales for the quarter, up from 8.8% last year, the company said. Consumer electronics same-store sales increased 4.9%, and same-store sales of computers and smartphones grew 1.6%, up from a 0.9% decrease in the same period last year.

"Admittedly the revenue increases may look anemic, with growth remaining well below the 2% level across all lines. However, in the context of a fairly weak electricals market and intense competition from online players, we believe that the results are respectable and show that Best Buy is finally getting its house in order," Håkon Helgesen, retail analyst at Conlumino, wrote in an email to Retail Dive. "In particular, the 1.8% uplift in US comparable sales is solid and shows real progress on both the prior year and prior quarter. Certainly, some new technology releases – like iPhone 7 – helped to generate this more positive outcome, but Best Buy also deserves credit for a market beating performance in consumer electronics – helped by wearables and smart home products – and a solid sales uplift in appliances."

While Best Buy's emphasis for a while was on cost-cutting, CEO Hubert Joly is now touting the company’s merchandise and store setup for the improvements in sales and traffic. Best Buy has leveraged its store-within-store approach for its Samsung and Apple offerings and was an early innovator in ship-from-store and other omnichannel services.

“We are excited by the continued product innovation we are seeing, the role we play for customers, the growth opportunities in front of us, the quality of our execution and the strength of our financial performance,” Joly said in a statement Thursday.

Moody’s lead retail analyst Charlie O’Shea also pointed to omnichannel as a strength, and said that Best Buy’s ability to avoid excessive discounting will continue to shore up results. “Best Buy’s third quarter online growth of over 24% results in a very solid quarter, and continues to validate the company’s multi-channel transformation,” O’Shea said in an email to Retail Dive. “In addition, the increase in revenue, while also improving operating margin by roughly 80 basis points, during a quarter which we believe was highly-promotional on a variety of fronts, indicates that Best Buy is continuing to be disciplined on price and is also generating operating efficiencies.”

But Best Buy's holiday quarter could get hit by recalled products — cameras and other devices, as well as Samsung phones. (The debacle of the Samsung Galaxy Note 7 recall in particular will hurt, the company noted, but perhaps not too much.) Low inventory of other in-demand electronics also poses problems. The expected impact will reach approximately $200 million, leading to guidance for that quarter for revenue of between $13.4 billion to $13.6 billion, according to CFO Corie Barry.

“The Samsung issues will be somewhat of a drag on Q4, however we believe Best Buy will be able to overcome these and have a strong holiday and overall fourth quarter, driven in large part by continuing online acceleration,” O’Shea said.