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Best Buy (BBY) Q2 2023 earnings

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Televisions are seen on the market at a Best Buy store in Recent York City.

Andrew Kelly | Reuters

Best Buy on Tuesday said sales dropped by about 13% within the fiscal second quarter, because the retailer felt a pullback from inflation-weary shoppers.

Shares closed the day at $74.89, up 1.61%, after the corporate reaffirmed its full-year guidance.

Best Buy had cut the sales and profit forecast in late July, saying it expects weaker demand for consumer electronics as people pay more for groceries and gas. The retailer projects same-store sales to drop by about 11% for the 12-month period ending in January.

CEO Corie Barry acknowledged that the economic backdrop has turn out to be choppier.

“We’re clearly operating in an uneven sales environment,” she said in a news release. The corporate is “focused on balancing our near-term response to difficult conditions and managing well what’s in our control” as it really works toward long-term growth, Barry added.

Here’s how the retailer did for the three-month period ended July 30 compared with what Wall Street was anticipating, in line with a survey of analysts by Refinitiv:

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

Softer sales, more promotions

Best Buy’s quarter reflects a pointy change in consumer spending habits. A yr ago, the retailer saw sales rise nearly 20% as shoppers bought TVs, laptops and more to sustain Covid pandemic-fueled habits like working from home and streaming movies.

Now, nevertheless, a few of those patterns have faded as people return to the office or go on summer vacations. Some consumers are skipping over big-ticket and discretionary items as they pay more for necessities. 

Sales fell year-over-year across most categories, with the most important drops in computing and residential theater, Barry said on an earnings call with investors.

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

Sales online and at stores open at the very least 14 months, a key metric generally known as same-store sales, declined by 12.1% versus the year-ago period. That is barely higher than Best Buy’s guidance, which anticipated an roughly 13% drop for the present three-month period.

Best Buy anticipates a sharper decline in same-store sales within the third quarter, Chief Financial Officer Matt Bilunas said in the corporate’s release Tuesday. He didn’t give specific guidance, but said it’s going to be greater than the 12.1% fall reported for the second quarter.

Barry said the retailer has noticed some shoppers are attempting to stretch the budget. Some, especially those from lower-income households, are trading all the way down to lower-priced TVs or timing purchases for sales events, she said on the earnings call. 

Still, she said, customers are willing to pay more for some brand-name items, corresponding to smartphones and gaming hardware.

Retailers across the industry are coping with an abundance of unwanted merchandise. Walmart and Goal, as an illustration, cut their profit forecasts for the complete yr because they’ve needed to mark down items to try to maneuver them off shelves.

Barry said Best Buy has closely managed its merchandise to be sure it doesn’t get stuck with excess goods. At the tip of the second quarter, she said, inventory was down 6% compared with the year-ago period. It was up about 16% from the identical time in 2019.

Even with its lower inventory levels, though, Barry said the corporate’s profits are under pressure as competitors discount an abundance of products with more promotions.

As sales soften, Best Buy has paused share buybacks. It’s also in the midst of a restructuring initiative, which has included layoffs of store employees.

Best Buy said it has spent $34 million on the restructuring effort, with most spent on termination advantages, and it expects more in the approaching months. It didn’t say if that may include more layoffs.

As of Monday’s close, Best Buy shares are down about 27% to date this yr. The stock closed Monday at $73.70, down lower than 1%. The corporate’s market value is about $16.6 billion.

Read Best Buy’s earnings release here.

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