Best Buy, the largest consumer electronics retailer in the U.S., is bracing for its tenth consecutive quarter of declining sales. The company’s quarterly results, set for release on May 30, reflect the ongoing challenges in the high-end electronics market despite a slight easing of inflation.
Consumer Spending Trends
While Walmart and Target have observed a rise in consumer spending on affordable items like apparel and accessories, big-ticket electronics such as TVs and washing machines remain a tough sell. Joseph Feldman, an analyst at Telsey Advisory Group, remarked, “I don’t think there’s any change in demand trends for electronics. I don’t expect this to be a very big quarter for Best Buy.” Feldman anticipates a recovery in demand only in the latter half of the year.
Inflation and Market Pressures
U.S. consumer prices rose less than expected in April, signaling a continuing downward trend in inflation. However, Best Buy, among the first major retailers to feel the pinch when inflation hit record highs in 2022, has struggled with demand for expensive items. High-end flatscreen TVs are currently priced between $1,099.99 and $5,799.99, while smart front-load washing machines cost around $1,499.98. These high prices have deterred many potential buyers.
Impact of Artificial Intelligence
Analysts suggest the rise of artificial intelligence (AI) is also affecting purchase decisions. Wealthier shoppers are delaying purchases, waiting for new laptops and TVs equipped with AI features like Microsoft’s co-pilot button. Wedbush analyst Seth Basham believes Best Buy could gain market share as these new products drive a replacement and innovation cycle.
Financial Expectations
According to LSEG data, Best Buy’s first-quarter revenue is expected to decline by 5.4% to $8.96 billion from the previous year, with comparable sales dropping by 4.94%. Analysts predict a 6.4% decrease in adjusted earnings to $1.08 per share. Best Buy will announce its results before the market opens on May 30.
Wall Street Sentiment
Since April 1, at least four brokerages have lowered their ratings or reduced price targets for Best Buy. The average rating among 28 analysts is “hold,” with seven rating it as a “buy” or higher and 19 maintaining a “hold.” Best Buy’s stock has fallen 7.3% so far this year.
Best Buy’s Strategic Response
Despite the challenges, Best Buy reported a profit of $246 million, or $1.13 per share, for the quarter ending May 4, compared to $244 million, or $1.11 per share, in the same period last year. Adjusted earnings per share were $1.20, surpassing Wall Street expectations of $1.08, according to FactSet.
However, sales fell to $8.85 billion from $9.46 billion, missing the expected $8.96 billion. “I’m proud of the performance of our teams across the company as they showed resourcefulness, passion, and an unwavering focus on our customers this past year,” said Best Buy CEO Corie Barry. She emphasized the company’s strong operational execution amidst a challenging environment, allowing them to deliver profitability at the high end of their guidance range despite lower sales.
Future Outlook
Best Buy plans to modernize its stores to attract shoppers and focus on its paid membership services, which have been popular with customers. The company is also streamlining management and reinvesting in store labor to enhance customer service. “Customers remained very deal-focused and attracted to more predictable sales moments,” Barry noted, highlighting that the appliance category has been particularly promotional.
Looking forward to FY25, Barry expressed optimism about Best Buy’s role in enriching lives through technology. “As we enter FY25, we are energized about delivering on our purpose to Enrich Lives through Technology in our vibrant, always changing industry. In what we expect to be a year of increasing industry sales stabilization, we are focused on sharpening our customer experiences and industry positioning while maintaining, if not expanding, our operating income rate on a 52-week basis,” she said.
Broader Retail Challenges
Best Buy’s struggles are part of a broader retail trend. Kohl’s, for example, reported a loss in its latest quarter and another sales drop, failing to significantly boost shopper spending despite various strategies. Competing with discounters and off-price stores like TJ Maxx, Kohl’s missed Wall Street expectations, causing its stock to drop by over 25%.
Despite a strong job market, Americans are prioritizing essentials like rent and groceries. Higher credit card interest rates have led many to delay big-ticket purchases, opting instead for experiences like travel and entertainment.
During the pandemic, Best Buy saw a surge in sales as consumers invested in electronics for remote work and virtual learning, fueled by government stimulus checks. Now, as the market stabilizes, the company is adapting its strategy to navigate the evolving retail landscape.
