Best Buy Co Inc. missed on profit in the first quarter with inflation hitting the consumer electronics retailer, but there are areas of the business that show continued promise in a volatile time.
“As it related to product pricing, we have seen an increase in our average selling prices [ASP] over the past two years due to a number of factors,” said Chief Executive Corie Barry on the earnings call, according to FactSet.
“First our product sales mix has changed, as customers have mixed into premium products at higher price points. This has been happening for years and accelerated during the pandemic. Additionally, we have driven material growth in appliances, which carry high ASPs and have become a larger part of our mix.”
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Chief Executive Marvin Ellison talked with MarketWatch last week about the ongoing strength in the home improvement category, which could bode well for Best Buy.
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Customers are also heading to Best Buy
outlets, which sell clearance, open-box merchandise and “distressed inventory,” like televisions and appliances.
“Last year, we estimate that approximately 16% of outlet customers were new to Best Buy and 37% were re-engaged Best Buy customers,” Barry said.
“In fiscal 2023, we plan to double the number of outlets by opening 15 additional stores, and we are expanding our assortment beyond major appliances and large TVs to include computing, gaming and mobile phones.”
Barry said Best Buy is feeling the squeeze of inflation like many other retailers and customers, with labor, marketing and supply chain costs rising. The company expects more promotions to come. Computing began to be more promotional last July, and televisions are becoming more so. The company expects promotions to increasingly resemble fiscal 2020 this year.
Best Buy has reached a point where earnings are in comparison to two years of unusually high demand as consumers made purchases in order to both live and work from home. By this standard, GlobalData says this most recent quarter’s results are “reasonable.”
“Best Buy remains a bigger and more profitable business that it was before the pandemic — and that is the true benchmark against which it should be judged,” wrote Neil Saunders, managing director at GlobalData.
“The numbers have also been delivered against a much more challenging backdrop with a couple of factors acting to pincer demand. Against this, the results could have been a great deal worse; that they weren’t is a testament to Best Buy’s relative strength in the market and its operational prowess.”
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GlobalData also highlights the macro environment besides inflation that has taken a toll on Best Buy results, including the war in Ukraine and chip shortages.
“The obvious takeaway, in our view, is that investors were bracing for this (post-Target/Walmart), results were better than feared, and expectations should be appropriately re-calibrated as we move further into a very difficult operating environment,” wrote Wells Fargo in a note.
Wells Fargo rates Best Buy stock equal weight with an $82 price target, down from $115.
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Best Buy shares slipped 0.8% in Tuesday trading, and are down 29.1% for the year do date.
The broader S&P 500 index
has tumbled 18.1% for 2022 so far.