With consumers no longer stuck at home, buying sprees for electronics have ended, which led Best Buy Co.'s sales to drop in the first part of this year.
Executives at the Richfield electronics retailer say they expect to continue to see lower profits as part of a projected long-term slowdown in the coming year.
Best Buy executives had already anticipated earnings would decline in February through April as the electronics seller lapped strong periods of growth during the the pandemic.
Although the latest sales exceeded analysts' expectations, the same inflationary pressures that have driven up costs for retailers such as Walmart and Target also have caused a slightly bigger hit than expected on Best Buy's bottom line.
The company said it earned $341 million, down 43% from $595 million in the same period a year ago. That amounted to an adjusted per-share profit of $1.57, below the $1.61 forecast of analysts surveyed by Reuters.
Revenue fell 9% to $10.6 billion — still better than the consensus forecast of analysts of $10.4 billion.
"Even with the expected slowdown this year as we lap two-plus years of pandemic impacts, we continue to be in a fundamentally stronger position than we expected to be at this point," Best Buy CEO Corie Barry said during a call with analysts Tuesday morning.
"We are confident in the strength of our business and excited about what lies ahead."
Best Buy shares jumped 1.2% on Tuesday after slipping to a 52-week low last week.
Similar to Target and other retailers whose reported results last week spooked investors and effectively tanked the market, Best Buy executives said economic conditions turned out to be worse than they expected just a few months back.
There have been higher costs in labor, marketing and throughout its supply chain system in which it has been more expensive to obtain containers and fuel.
Executives lowered their sales expectations for the full year, forecasting a decline of 3 to 6% after previously predicting a drop of 1 to 4%.
Still, Best Buy is in a better spot than it was before the pandemic: Revenue was 16% higher in the quarter compared with the same time in 2019.
Anthony Chukumba, an analyst at Chicago-based Loop Capital Markets, called it a "solid quarter" and said Best Buy is up against difficult comparative numbers. A year ago, comparable sales grew 38% in the spring quarter but fell 8.5% against that base this year.
"It's kind of a double whammy because you have those tough comparisons and clearly the macroeconomic environment is weakening," Chukumba said. "You have consumers that are very concerned about inflation. You got sort of a geopolitical overhang with what's going on right now in Ukraine. You do have mortgage interest rates rising."
More consumers are focused on spending money on experiences rather than products as they are able to go out more. Many consumers have also pulled back on spending altogether because of high inflation.
Best Buy's customer base, which had started to become more moderate income and female during the pandemic, has begun to skew back to wealthier male shoppers. Customers are buying more higher-priced products such as premium appliances, a trend that began years ago but accelerated during the pandemic. In-home consultations and installations are up significantly.
Best Buy has increased the prices of some products as vendor costs have gone up, but at the same time executives said customers may see more markdowns than in the past two years. They said they anticipate product availability to improve later in the year.
Best Buy still plans to test store formats this year similar to the experimentation it has tried in the past two years. The company continues to gradually grow its footprint of experiential stores and outlet stores that sell open box and clearance products. About 50 stores will be remodeled into experiential stores with more in-person immersions this fiscal year.
This summer and fall, Best Buy also plans to open four new outlet stores, which the company says have been studied to attract new customers.