Dive Brief:
- Best Buy reported another quarter of compressed sales, with comp sales down 10.4% and top-line revenue down 11.1% in the third quarter.
- The company’s gross profit rate fell by just over 1.5 percentage points from last year, and operating income was down 45.5% from Q3 last year.
- Despite the declines, Best Buy’s Q3 results beat analysts’ and the company’s own forecasts, and the retailer lifted its guidance for the year on sales and profits.
Dive Insight:
Best Buy’s Q3, like the period before it, was marked by an intensification in discounting in the electronics space, as well as a downshift in consumer spending. Demand for electronics has fallen from its pandemic highs, and remains uncertain and uneven as households manage their way through historic inflation.
In a call with analysts, Best Buy CEO Corie Barry said that promotions on prices across the industry had accelerated more quickly than anticipated, which weighed on the company’s margins and profits.
That kind of promotional activity, Barry noted, was largely absent during the pandemic up until this year. During the quarter, discounting in the industry had returned to pre-pandemic levels and in some areas was even more promotional than pre-pandemic levels. That is due to both weakening demand and a retail industry that is working through ongoing inventory excesses, according to Barry.
Best Buy’s own inventory levels were down 15% from Q3 last year. That is due in part to how much holiday and other inventory Best Buy ordered early in 2021 as the industry managed widespread and unprecedented supply chain backups. (Barry also said that this year some receipts came in later than expected, kicking them into Q4.)
One other area where the economic and consumer spending environment hurt the retailer was in sales of its Total Tech Support membership, which Best Buy launched last year and is a linchpin of the retailer’s strategy. Barry said that total member count is lower than management’s original expectations, though the company is “encouraged” by the general pace of customer acquisition.
With Best Buy’s overall performance in Q3 beating its (lowered) expectations, the company resumed share repurchases after pausing in Q2 as the retailer’s performance weakened. For the year, the company expects to buy back $1 billion of its own stock, Chief Financial Officer Matt Bilunas said in prepared remarks.
Yet the company has also cut staff as it navigates the tougher macro environment. Bilunas said on the call that Best Buy racked up $26 million in restructuring costs in Q3. For the year to date, the company has incurred $61 million in similar costs, most of it comprised of termination benefits to an unspecified number of employees let go.
Overall, Best Buy’s results point to a holiday season for retail that is going to be heavy on discounting — something laid bare in other recent earnings as well, including those of Target. Barry also suggested that it might look more like pre-pandemic holiday shopping, with less early purchasing and more concentration on the traditional shopping days around Black Friday.
Neil Saunders, managing director with GlobalData, noted in emailed comments that Best Buy’s Q3 “represent a modestly improved — or at least a less bad — performance” than Q2, which brought a steeper slide in sales. Saunders noted factors behind the sales declines, including tightened spending as consumers come under financial pressure, big purchases that were pulled forward earlier in the pandemic, and the return of more experiential spending.
“None of these dynamics is within Best Buy’s control so today’s numbers don’t represent any major strategic failing of the company,” Saunders said. “Indeed, our analysis suggests that Best Buy continues to gain a modest amount of market share so is outperforming the market.”
