Best Buy Q2 results fall amid softening demand for gadgets

NEW YORK (AP) — Best Buy posted lower fiscal second-quarter profits and sales as the nation’s largest consumer electronics chain struggled with weakening consumer demand for gadgets and high costs that rippled through its supply chain.

But the results, announced on Tuesday, were above analysts’ expectations. That pushed shares up more than 2% higher in early afternoon trading.

Best Buy’s sales during the height of the pandemic were fueled by oversized spending from shoppers who were splurging on gadgets to help them work from home or help their kids with virtual learning. Last year, spending also got a boost from government stimulus support. So like many retailers, Best Buy entered the year expecting that financial results would be weaker than in 2021 as stimulus disappeared and shoppers would brace more normal pre-pandemic lifestyles.

But soaring prices on necessities like food and gas have forced families to become more cautious. They are doing without new clothing, electronics, furniture and almost everything else that is not absolutely necessary. And spending habits have shifted faster this year than anyone expected. After being cooped up at home during the pandemic, Americans seemed to shift almost overnight to spending on dinners out, movies and concerts, and travel.

That has also caused companies to step up discounting to get rid of excess inventory as they head to the critical fall and holiday seasons. As a result, that took a toll on businesses across all types of retailers from Target to Macy’s.

“There has never been a time like this,” said Best Buy CEO Corie Barry answering a reporter’s question about what feels different now. “We have never seen the whipsaw of consumer behaviors fueled by amazing amount of government stimulus intercepted by geopolitical unrest that is unlike anything we have seen in decades.”

Barry said that inflationary pressures on food, rent and gas are forcing shoppers to trade down to lower prices in certain categories like TVs. However, when it comes to mobile phones, they’re replacing them with the same or similar models they had. They’re also focused on deals, she added.

Barry noted that inventory for the second quarter was actually down 6% from the same year-ago period. But it is up roughly 16% from pre-pandemic fiscal 2020.

Barry told reporters on a media call Tuesday that the company has healthy inventory levels, but it’s competing with excess inventory across the retail industry. That aggressive industrywide discounting pressured Best Buy to also cut prices and shoppers will see discounts starting earlier for the holiday shopping season. Higher supply-chain costs and lower margins related with its membership program also ate into its profit rate during the quarter.

Minneapolis-based Best Buy warned in July that sales would fall more than expected. It had forecast this year’s sales at stores opened at least a year to decline 11%, much steeper than the 3% to 6% drop it originally forecast in May. For the fiscal second quarter, it said in July that comparable sales would be down 13%.

Best Buy reported that net income fell 60% to $306 million, or $1.35 per share, for the three-month period ended July 30. That compares with $734 million, or $2.90 per share, in the year-ago period. Revenue dropped 13% to $10.33 billion.

Analyst were expecting $1.27 per share on sales of $10.27 billion, according to FactSet.

Comparable sales — sales in stores open at least a year — dropped 12.1% compared to a 19.6% increase in the year-ago period.

Domestic gross profit rate was 22.0% versus 23.7% last year in part because the company stepped up discounts to move inventory.

Minneapolis-based Best Buy warned in July that sales would fall more than expected. It had forecast this year’s sales at stores opened at least a year to decline 11%, much steeper than the 3% to 6% drop it originally forecast in May. For the fiscal second quarter, it said in July that comparable sales would be down 13%.

For the year, Best Buy is sticking to its previous forecast for an 11% drop in comparable sales.

Looking ahead to the fiscal third quarter, it expects that comparable sales will decline slightly more than the 12.1% decline it reported in the fiscal second quarter.

Shares rose $1.66 to $75.36 in early afternoon trading.

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