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

May 24, 2022, 5:31 AM | Updated: 10:09 pm
FILE - Shoppers are silhouetted as they walk toward a Best Buy store after doors opened at 5 a.m., ...

FILE - Shoppers are silhouetted as they walk toward a Best Buy store after doors opened at 5 a.m., Nov. 26, 2021, in Lone Tree, Colo. Best Buy Co. posted first-quarter results that showed shoppers pulled back on their spending and higher costs ate into profits. The nation's largest consumer electronics chain also on Tuesday, May 24, 2022 cut its annual outlook, citing a deteriorating economic environment. Best Buy was among a handful of big winners in the pandemic, as shoppers flocked to its stores and website to buy equipment to furnish home offices or cater to their children's needs for virtual learning. (AP Photo/David Zalubowski, file)

(AP Photo/David Zalubowski, file)

NEW YORK (AP) — Best Buy Co. posted first-quarter results Tuesday that showed shoppers pulled back on spending, while higher costs ate into profits.

The nation’s largest consumer electronics chain also cut its annual outlook, noting a deteriorating macro economic environment.

Best Buy was among a handful of big winners in the pandemic, as shoppers splurged on tech equipment like laptops to create home offices to help them with remote work or cater to the needs of their children for virtual learning. But like many retailers, Best Buy is struggling with rising costs for everything from labor to shipping. The electronics chain also had to navigate global chip shortages. And soaring fuel costs and the return of promotions are hurting its bottom line.

Meanwhile, Best Buy, like other retailers, is also adjusting to changing shopping behavior. Demand for electronics is cooling as consumers go back to the office and resume normal lives. Inflation is also making shoppers scrutinize their purchases. In particular, CEO Corie Barry told reporters on a call Tuesday that purchases by lower-income shoppers, who were new Best Buy customers during the pandemic, have recently fallen off.

Best Buy follows other major retailers, including Walmart and Target, in reporting that inflation has taken a bite out of earnings. The other big discounters also reported shifts in spending. Target said that it didn’t anticipate a lightening quick return by consumers to more normalized spending. Purchases of big TVs and appliances that Americans loaded up on during the pandemic have faded, leaving Target with a bloated inventory that must be marked down to sell.

Among mall-based clothing chains, teen retailer Abercrombie & Fitch posted a first-quarter loss and cut its outlook on Tuesday.

But upscale department store chain Nordstrom boosted its annual outlook following strong first-quarter results that showed the retailer took advantage of customers shopping for “long-awaited occasions,” Nordstrom CEO Erik Nordstrom said. Shares in Seattle-based Nordstrom jumped more than 10% in after-hours trading.

Barry of Best Buy said she expected this year’s results to be weaker than last year as it lapped stimulus payments and other government support and planned for higher costs in its supply chain. But she noted macroeconomic conditions worsened since it provided its financial outlook in early March, which resulted in its sales being slightly lower than its expectations.

“Sustained high levels of inflation is having an impact broadly again on the consumer, who we feel is pulling back at a faster, deeper pace than we initially assumed,” Barry said.

Barry said Best Buy has a healthy inventory of products, though she noted there are still some isolated areas where there is a shortfall.

Overall, Barry said the company is preparing for an environment of softer sales, but not planning for a full recession.

Neil Saunders, managing director at GlobalData Retail, said given the multitude of challenges, Best Buy fared reasonably well. It noted that while the company has suffered from out-of-stocks because of supply issues, it still has better availability than others because of its size and its strong relationship with vendors. That has helped it retain customers and spending, he noted.

Still, Saunders said he’s worried about the consumer psyche.

“Electronics are highly discretionary, big-ticket items,” he said. He also noted people are going back to more normal lifestyles.

“People are home less, many have returned to the office and classroom, and leisure activities such as attending sports events and movies has risen,” he added.

Best Buy, based in Richfield, Minnesota, reported fiscal first-quarter net income of $341 million, or $1.49 per share. Earnings, adjusted for amortization costs and restructuring costs, came to $1.57 per share.

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

But consumer electronics retailer posted revenue of $10.65 billion in the period, down 8.5% from the year-ago period. But revenue still topped topped analysts’ forecasts. Nine analysts surveyed by Zacks expected $10.43 billion.

The company saw comparable sales decline across almost all categories, with the largest drivers being computing and home theater. The metric, a key measure of a retailer’s health, measures sales in stores open at least a year.

Domestic online revenue was down 4.9% on a comparable basis, and as a percentage of total domestic revenue, online revenue was 30.9% versus 33.2% last year.

Best Buy expects full-year earnings in the range of $8.40 to $9 per share, with revenue in the range of $48.3 billion to $49.9 billion. Previously, it expected per-share results of $8.85 to $9.15 and revenue of $49.3 billion to $50.8 billion

Analysts expected $8.88 per share on $50.17 billion for the year.

Best Buy’s shares rose more than 1%, or 88 cents, to close at $73.47 on Tuesday.

_____

Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on BBY at https://www.zacks.com/ap/BBY

_____

Follow Anne D’Innocenzio: http://twitter.com/ADInnocenzio

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

FILE - Pipes at the landfall facilities of the 'Nord Stream 2' gas pipline are pictured in Lubmin, ...
Associated Press

EU countries adopt mandatory gas storage amid Russia’s cuts

BRUSSELS (AP) — European Union countries agreed Monday that all natural gas storage in the 27-nation bloc should be topped up to at least 80% capacity for next winter as they prepare for the possibility of Russia further reducing deliveries. The EU is trying to slash its use of Russian energy amid the Kremlin’s war […]
4 hours ago
Water-filled barriers have been installed by police outside the Hong Kong Convention and Exhibition...
Associated Press

Will he go or not? Hong Kong awaits word on Xi Jinping visit

HONG KONG (AP) — Will he go or not? Chinese President Xi Jinping kept Hong Kong guessing on Monday about his possible appearance at the 25th anniversary of the former British colony’s return to Chinese rule. The government has yet to say whether he will be physically present for the events, which include the inauguration […]
4 hours ago
A Norwegian national flag flutters over flowers and rainbow flags that are placed at the scene of a...
Associated Press

Norway: Suspect in deadly Pride shooting agrees to custody

OSLO, Norway (AP) — The suspect in Saturday’s mass shooting during an LGBTQ festival in Oslo has agreed to be held in pretrial custody for four weeks and will therefore not appear in court on Monday, a Norwegian court said. Zaniar Matapour, a 42-year-old Norwegian citizen originally from Iran, was arrested shortly after the predawn […]
4 hours ago
From left, Italy's Prime Minister Mario Draghi, Canada's Prime Minister Justin Trudeau, France's Pr...
Associated Press

EXPLAINER: G7 provides forum for like-minded democracies

ELMAU, Germany (AP) — In 1975, leaders of the world’s wealthy democracies gathered to deal with an energy crisis sparked by a war and rampant inflation. Those same sore points are bedeviling their successors representing 46% of the global economy at this week’s Group of Seven summit, with high consumer and energy prices threatening to […]
4 hours ago
A restaurant cook wearing a mask takes a break out on the sidewalk, Monday, June 27, 2022, in Beiji...
Associated Press

Censors delete discussion of Beijing’s future COVID control

TAIPEI, Taiwan (AP) — Digital censors quickly deleted a hashtag “the next five years” Monday as online discussion swirled in response to reported remarks of Beijing’s Communist Party secretary saying that the capital city will normalize pandemic prevention controls over the course of the next five years. Beijing’s Communist Party chief, Cai Qi, made the […]
4 hours ago
Associated Press

Cyberattack forces Iran steel company to halt production

DUBAI, United Arab Emirates (AP) — One of Iran’s biggest steel companies said on Monday it was forced to halt production after being hit by a cyberattack, apparently marking one of the biggest such assaults on the country’s strategic industrial sector in recent memory. The state-owned Khuzestan Steel Company said in a statement that experts […]
4 hours ago

Sponsored Articles

...
Christina O’Haver

BE FAST to spot a stroke

Every 40 seconds—that’s how often someone has a stroke in the United States. It’s the fifth leading cause of death among Americans, with someone dying of a stroke every 3.5 minutes.
...
Carla Berg, MHS, Deputy Director, Public Health Services, Arizona Department of Health Services

ADHS mobile program brings COVID-19 vaccines and boosters to Arizonans

The Arizona Department of Health Services and partner agencies are providing even more widespread availability by making COVID-19 vaccines available in neighborhoods through trusted community partners.
...
Canvas Annuity

The secret to guaranteed retirement income

Annuities aren’t really a secret, but they are so misunderstood that they might as well be. Once you understand what an annuity is and how it can benefit you, you could decide this “secret” is the perfect supplement to your retirement plan.
Best Buy lowers outlook as Q1 results show inflation’s bite