Best Buy lowers outlook as Q1 results show inflation’s bite

New York – Best Buy Inc reported first-quarter results that showed shoppers spending less while higher costs eroded profits.

The country’s largest consumer electronics chain also lowered its annual outlook, citing a deteriorating macroeconomic environment.

Best Buy is one of the few big winners from the pandemic, as shoppers pile up tech gear like laptops to create home offices to help them work remotely or meet their kids’ needs for virtual learning. But like many retailers, Best Buy is grappling with rising costs on everything from labor to shipping. The electronics industry chain also has to deal with a global chip shortage. Another round of COVID-19 lockdowns in China will only make the problem worse. Soaring fuel costs and the return of promotions are hurting profits.

Meanwhile, Best Buy, like other retailers, is adapting to changing shopping behaviors. Demand for electronics is cooling as consumers return to the office and resume normal life. Inflation also makes shoppers scrutinize their purchases. In particular, low-income shoppers who became new Best Buy customers during the pandemic have seen a recent drop in purchases, CEO Corie Barry told reporters on a conference call Tuesday.

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Best Buy followed reports from other major retailers such as Walmart and Target that inflation has eroded earnings. Other big discounters also reported changes in spending. Target said it doesn’t expect consumers to return to more normal spending anytime soon. Americans have been buying fewer large TVs and appliances during the pandemic, causing Target to swell its inventory and have to sell at lower prices.

Barry said she expects this year to be weaker than last year as the company receives stimulus payments and other government support and plans to raise costs in its supply chain. But she pointed to worsening macroeconomic conditions since the financial outlook was provided in early March, causing its sales to fall slightly below expectations.

“Continued high inflation is again having broad implications for consumers, who we believe are pulling back at a faster and deeper pace than we initially assumed,” Barry said.

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Best Buy has a healthy inventory of products, Barry said, but noted that there are still shortages in some remote areas.

Overall, Barry said the company is bracing for a weaker sales environment but isn’t planning a full-blown recession.

Neil Saunders, managing director of GlobalData Retail, said Best Buy is doing pretty well given the many challenges it faces. It noted that while Best Buy suffers from out-of-stocks due to supply issues, it still has better availability than other companies due to its size and strong relationships with suppliers. He noted that this helps it retain customers and spend.

However, Sanders said he was concerned about consumer psychology.

“Electronics are big-ticket items that are highly discretionary,” he said. “That puts them directly on the line of fire for families looking to cut back.” He also noted that overall demand for electronics has also been hit by a return to normalcy in society.

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“People are not at home, many are returning to offices and classrooms, and there has been an increase in recreational activities such as sporting events and movies,” he added.

Ridgefield, Minnesota-based Best Buy reported first-quarter net income of $341 million, or $1.49 a share. Earnings, adjusted for amortized and restructuring costs, were $1.57 per share.

The results fell short of Wall Street expectations. The average estimate of 11 analysts polled by Zacks Investment Research was for earnings per share of $1.59.

But the consumer electronics retailer posted revenue of $10.65 billion during the period, down 8.5% year over year. But revenue was still higher than analysts had expected. Nine analysts polled by Zacks expected $10.43 billion.

The company saw comparable sales declines in nearly every category, with the biggest drivers being computing and home theater. The metric, a key measure of a retailer’s health, measures sales at stores open for at least a year.

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Domestic online revenue declined 4.9% on a comparable basis, with online revenue as a percentage of total domestic revenue at 30.9% compared to 33.2% last year.

Best Buy expects full-year earnings of $8.40 to $9 per share on revenue of $48.3 billion to $49.9 billion.Previously, it expected earnings of $8.85 to $9.15 per share on revenue of $49.3 billion to $50.8 billion

Analysts expect earnings per share of $8.88 this year on $50.17 billion.

Best Buy shares are down 29% since the start of the year, while the S&P 500 is down 17%. The stock has fallen 37% over the past 12 months.

Shares were down 69 cents at $71.90 in afternoon trade.

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Elements of this story were generated by Automatic Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research.Access Zacks’ BBY Stock Report at https://www.zacks.com/ap/BBY

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