Consumers flush with stimulus payments continued to invest in technology and products for their homes this spring, leading to a sharper-than-expected increase in Best Buy Co. sales and profits.
While it wasn't a huge surprise that the Richfield retailer's financial results were better than a year ago, when the pandemic caused stores to temporarily close, they amounted to the biggest sales gains in recent memory.
"Customer demand for technology products and services within the quarter was incredibly high, and you can see this continued focus on the home and nesting, and that's things like working, learning, cooking but also entertaining, remodeling and also redecorating," Best Buy CEO Corie Barry said on a call with reporters.
The Richfield-based retailer said Thursday it earned $595 million, or $2.32 a diluted share, in the three months ended May 1. Revenue was $11.6 billion, up about 36% from $8.6 billion a year ago and up more than 27% from $9.1 billion in the comparable period two years ago.
"Obviously we are lapping a bit of an unusual quarter last year that included both some periods of high demand and some periods where our stores were closed to foot traffic so when you compared those results to two years ago they are still quite strong," Barry said.
The company attributed part of the quarter's growth to stimulus payments and the strong housing market. Customers continued to focus on products to improve their lives at home, with the biggest sales gains coming from home theater, computing and appliances.
Executives raised their outlook for the rest of the fiscal year, and Best Buy shares finished Thursday up 1%.
Earlier this year, company leaders said a slowdown could happen as concerns over COVID-19 recede and consumers resume normal spending habits including more spending on travel and eating out.
But with sales better than expected, Best Buy adjusted its outlook for the full fiscal year saying it expected comparable sales to jump 3 to 6% instead of a more modest February prediction that sales could range from falling 2% to increasing 1%.
They expressed some caution about the second half of the year, in part because they suspect consumers will spend more time on activities that were paused during the pandemic.
"While we continue to believe the role of technology in people's eyes has only intensified as a result of the pandemic, our working assumptions still reflect a scenario in which customers resume or accelerate spending in the areas that have slowed from the start of the pandemic in the back half of this year," said Matt Bilunas, Best Buy's chief financial officer, during a call with analysts.
Digital sales growth has slowed, though it was still up 7.6% compared with last year when online sales more than doubled during the start of the pandemic.
Online revenue accounted for about a third of total domestic revenue versus about 42% last year. That's an early indicator of how online sales will likely continue to wane for many retailers as the country emerges from the pandemic in the latter half of the year, said Neil Saunders, managing director of data analytics firm GlobalData.
But Saunders said he thought Best Buy was in a positive position to respond to customer needs whether online or in person.
"I think in electronics it really just underlies the fact that the future is omnichannel ... to be able to order online when you see stuff, to be able to pick up in stores when you want stuff quickly, and also to be able to visit stores to try various products and talk to someone to understand the product better," he said.
Saunders was impressed with "the level of uplift" Best Buy was able to achieve in the quarter, though much of it was helped by stimulus payments that might not be around in the third and fourth quarter and perhaps bigger purchases that people make only once in awhile.
Best Buy said it would continue to test new store models and layouts in a yet-to-be-announced market outside the Twin Cities. Sizes will vary, with some as small as 5,000 square feet.
Best Buy has been inventive throughout the last year. Last winter, the company redesigned four stores in the Twin Cities to decrease the shoppable square footage and increase the area for fulfillment. In Houston, the company has tested a more experiential store that features computer gaming, headphones and fitness experiences plus a covered curbside area that has shown better sales growth compared with some other stores, Barry said.
As part of its Best Buy Beta pilot program, Best Buy started to offer $200 yearly memberships, with benefits such as free or discounted Geek Squad services, product warranties and free shipping. Last week, Best Buy's health division introduced a smartphone for seniors.
This month Best Buy also announced that, after changes to mask guidance from the CDC, vaccinated customers and employees would no longer be required to wear masks in stores unless mandated by local laws. Many of the chain's cleaning protocols will remain in place, Barry said.
Looking to the future, Best Buy leaders remained optimistic. "Even with the elevated demand we have seen throughout the pandemic, we believe the nesting phenomenon will continue to drive demand for products and services that help customers improve their home experience," Barry said.
