People walk past a Best Buy store in Manhattan, New York City, November 22, 2021.
Andrew Kelly | Reuters
Best buy It beat Wall Street's revenue and profit expectations for the holiday quarter on Thursday, even as the company went through a period of tepid demand for consumer electronics.
But the retailer warned of another year of weak sales and said it would lay off workers and cut other costs across the company. CEO Corey Barry offered few details, but said the company must ensure its workforce and stores align with customers' changing shopping habits. She added that the cuts would free up capital to invest back into the business and into newer areas, such as artificial intelligence.
“This gives us some of that space so we can reinvest in our future and make sure that we feel like we're in a really good position for the industry to start to recover,” she said on a call with reporters.
For this fiscal year, Best Buy expects revenue to range from $41.3 billion to $42.6 billion. This would represent a decline from the last fiscal year ended, when full-year revenue totaled $43.45 billion. Comparable sales will range from flat to a 3% decline, she said.
The retailer plans to close 10 to 15 stores this year after closing 24 stores in the last financial year.
One challenge that will impact sales next year is that it is a week shorter. Best Buy said the extra week in the last fiscal year lifted revenue by about $735 million and boosted diluted earnings per share by about 30 cents.
Best Buy shares closed up more than 1% on Thursday after briefly touching a 52-week high of $86.11 earlier in the session.
Here's what the consumer electronics retailer reported for its fiscal fourth quarter of 2024 compared to what Wall Street was expecting, based on a survey of analysts conducted by LSEG, formerly known as Refinitiv:
Earnings per share: $2.72, adjusted vs. $2.52 expected. Revenue: $14.65 billion vs. $14.56 billion expected
Decrease in demand, but better holiday feared
Best Buy has dealt with sluggish demand in part because of its strong sales during the pandemic. Like home improvement companies, Best Buy saw big spending as shoppers were stuck at home. Additionally, many items sold by the retailer such as laptops, refrigerators, and home theater systems tend to be more expensive and less frequent purchases.
The retailer cited other challenges as well: Shoppers have been more selective about making large purchases while dealing with rising food prices due to inflation and more. In addition, they are back to dividing their money between services and goods after years of little activity during the pandemic.
However, Best Buy posted a holiday quarter that was better than feared. In the three-month period ending February 3, the company's net income fell 7% to $460 million, or $2.12 per share, from $495 million, or $2.23 per share in the same period last year. Revenues were down from $14.74 billion the previous year.
Comparable sales, a measure that includes sales online and in stores open at least 14 months, fell 4.8% during the quarter as shoppers bought fewer appliances, cell phones, tablets and home theater devices than the same period a year ago. On the other hand, toys were a strong sales category in the holiday quarter.
In the US, Best Buy's comparable sales fell 5.1% and its online sales fell 4.8%.
During the quarter, traditional holiday shopping days were the strongest for Best Buy, CFO Matt Bellonas said on the company's earnings call. Comparable sales were down 5% year over year in November but were only down 2% in December during the gift-giving holidays. He said January was the weakest month of the quarter with comparable sales down 12%.
Customers “were very focused on deals during the holiday season,” Barry said. Sales on days known for deep discounts like Black Friday and Cyber Monday were in line with expectations, but December's sales lull was worse than expected.
Demand was stronger than the company expected in the four days before Christmas.
Signs of “stability”
On the earnings call, Barry said Best Buy expects next year to be a year of “further stabilization of industry sales.”
She said the company is “focused on refining our customers’ experiences and positioning them in the industry,” as well as raising its operating income. This metric is expected to improve next year.
Strength in service revenue, which includes fees from the annual membership program, installation and in-home repairs, helped offset weak demand for new items. It's a growth area that the company expects to continue into the next year.
Some of the gains in its service business came from switching to My Best Buy, a three-tier membership program that ranges in price from free to $179.99 per year depending on perks and benefits.
The company removed home installations as a feature of this program, which Barry said on a call with reporters has led to more people choosing to pay for the service.
As of the end of the fiscal year, My Best Buy had 7 million paid members. Customers who belong to the program spent more at Best Buy than those who didn't, she said.
Barry said Best Buy's services will help the retailer stand out, especially as customers look for guidance as artificial intelligence becomes part of more devices.
The retailer has been waiting for customers to upgrade and replace their consumer electronics following the wave caused by the pandemic. “There are some signs that the cycle has begun,” Barry said on the earnings call. For example, it said year-over-year comparable laptop sales turned positive in the fiscal fourth quarter and remained positive in the first quarter.
She pointed to other positive indicators as well, including slowing inflation and “green shoots” in the housing market. Sales at Best Buy are not directly tied to the housing market, which has seen a slowdown in trading volume, but home purchases tend to spur appliance and TV purchases, she said.
Best Buy paid a $198 million dividend and spent $70 million on stock buybacks during the period. The company said Thursday that its board of directors approved a 2% increase in the regular quarterly dividend to 94 cents per share, which will be paid in April.
As of Thursday's close, Best Buy stock was up nearly 3% so far this year. The company has underperformed the S&P 500's gain of roughly 7% over that period. Best Buy has a market cap of about $17.4 billion.
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