For more than a year after the electronics boom at the onset of the COVID-19 pandemic, Best Buy has endured slumping sales.
This spring, the Richfield-based chain said the end of this year, with its back-to-school stock-ups and holiday shopping, could herald the long-awaited comeback. On Tuesday, early 2024 seemed the more likely option.
All this while sales again dropped, this time a little more than 6% in May, June and July compared to a year ago for stores open longer than a year. Though that's better than the more than 10% sales fall from earlier this year, it's yet another instance of Best Buy treading water while it waits for a life saver to float its way.
Not that they're letting any exhaustion show.
"I think we're encouraged by the trends as we leave [the second quarter]," said Best Buy CEO Corie Barry in a call with analysts. "If you think about what happened in Q2, we actually saw some stabilization in our business."
Total sales for the Richfield retailer were $9.6 billion, slightly higher than what Wall Street analysts anticipated. The company earned $274 million, down more than 10% from a year ago. Its adjusted per-share profit totaled $1.22, which was better than the $1.06 analysts forecast.
Best Buy share prices were up about 4% Tuesday.
Best Buy leaders had predicted earlier this year sales this second quarter would drop 6% to 8%, so the company did perform on the more positive side of expectations. That gave Best Buy leaders confidence that after this year, electronics demand could recover from the hangover it has suffered since the end of the pandemic. Consumers might soon want to replace the tech they scooped up in 2020 and 2021, when many people were stuck at home.
"We continue to expect that this year will be the low point in tech demand after two years of sales declines," Barry said. "Tech is a bigger part of all our lives both in our homes and in our businesses than ever. And we believe next year, the consumer electronics industry should see stabilization and possibly growth driven by the natural upgrade and replacement cycles for the tech bought early in the pandemic and the normalization of tech innovation."
Television sales improved in the second quarter with the number of units sold returning to positive growth. Already, Best Buy said it's seeing a surprising pick-up to start the back-to-school season. Laptop unit sales have been relatively flat as opposed to on the decline, indicating the industry is leveling off, Barry said.
"That is a pretty material trajectory change from what we have been seeing before heading into [the second quarter]," she said on a call with reporters.
Yet Best Buy still narrowed its expectations for comparable sales to between 4.5% and 6% this fiscal year, a smaller range but an increase on the low end from its prior guidance of a 3% to 6% decline. The retailer still has many challenges ahead with consumers — faced with the high prices of everyday goods — more focused on how to afford necessities like groceries and keep up with their bills. Much of the disposable income consumers have is being spent more on travel and entertainment as opposed to products.
A major factor for Best Buy's more conservative view of its previous guidance was the U.S. Supreme Court striking down President Joe Biden's student loan forgiveness plan and student loan repayments resuming this fall, Barry said.
While student loan repayments are a headwind for many retailers, it can be a larger factor for Best Buy, whose core customers are more likely college educated, said Michael Lasser, a Minneapolis-based retail analyst for UBS.
"You can correlate those retailers that tend to lean more toward higher income and affluent households as having potentially more risk here because those are also the households that are more likely to have student loan debt that will start to need to be repaid," Lasser said.
Barry said in May the company could begin to see people wanting to replace electronics bought during the pandemic possibly later this year, depending on the economy, but more likely in 2024 and 2025. Barry reaffirmed Tuesday the timing of the consumer electronics recovery is looking more likely for next year.
Best Buy executives think in the third quarter of this year same-store sales should decline around the same rate or a little less than they did this past quarter. In the winter, sales could be down around 3% to possibly showing an increase from the same time last year, Barry said. A lot of that increase would likely come from growth in home theater as Best Buy predicts it will be in a better inventory position than when shipments were delayed during the pandemic.
Best Buy thinks consumers will return to pre-pandemic behaviors and look more for deals and promotions this holiday, Barry said.
According to Placer.ai, Best Buy's foot traffic was down almost 6% at the start of July compared to last year, but that was an improvement from April and May, when it was down around 12% compared to 2022.
The gradual improvement in electronics demand will likely continue as long as economic conditions don't worsen, Lasser said.
"Many of these products are indispensable in our daily lives, so we'll need to replace what breaks or becomes obsolete," he said. "But on the other hand, it will be macro-dependent. If people start losing their jobs, that is going to influence their willingness and ability to replace some of these products."
A common problem
Many retailers are still dealing with bumps on the road to sales recovery. Home Depot has said big-ticket purchases were down more than 5% compared to last year as it sees softer demand in categories like patio and appliances. Target recently said it saw a double-digit comparable sales decline in hardlines such as electronics this past quarter. Samsung, the world's largest manufacturer of computer memory chips, saw its operating profit down more than 90% compared to last year. But its leaders said they expected global demand to gradually recover in the second half of the year.
Best Buy has continued to try to evolve no matter the macro circumstances. It is shifting to a leaner model with fewer workers and smaller store space, which its leaders said will allow it to be more flexible. It is also opening a range of store models, including ones that focus on shoppers trying out products in stores.
Best Buy says it is installing premium end caps in partnership with vendors to improve the merchandising in the center of its stores. It is also changing its gaming sections to expand computer gaming and reallocate more space for newer categories like wellness products.
"While small, we are seeing promising results in some of these new categories with meaningful market share growth," Barry said.