Best Buy on Thursday reported that U.S. first quarter revenue rose 0.8% year over year to $8.48 billion, with its new GreatCall acquisition contributing to sales. U.S. online sales rose 14.5% on a comparable basis to $1.31 billion, thanks mostly to higher average order values and increased traffic. As a percentage of total domestic revenue, e-commerce expanded by some 180 basis points to 15.4% from 13.6% last year. Overall company revenue rose to $9.14 billion from $9.11 billion a year ago.
Domestic store comps rose 1.3%, driven by healthy sales in appliances, wearables and tablets partly offset by declines in entertainment, according to a company press release. The company excluded all 257 Best Buy Mobile stand-alone stores slated for closure in the U.S. from that metric.
The domestic gross profit rate expanded by 40 basis points to 23.7% from 23.3% last year, driven mostly by better product margins and GreatCall's higher gross profit rate. Higher supply chain costs offset those gains somewhat, the company said. Overall company net income rose to $265 million from $208 million in the year-ago quarter.
Best Buy's incoming CEO Corie Barry and outgoing CEO Hubert Joly shared top billing on a conference call with analysts on Thursday, a symbol of what Neil Saunders, managing director of GlobalData Retail, calls the retailer's "clear vision" and good management.
The electronics retailer under Joly emerged from the Great Recession and Amazon's incursion into the space with solid execution of a turnaround, and Saunders sees it as well poised to weather incoming challenges, including a dearth of electronics must-haves and the fact that consumers appear to be less well off than a year ago. Its modest sales increase appears to be dependent on its acquisition of health care services company GreatCall, which Barry said on Thursday is an indication of the wisdom of that purchase. Without GreatCall, though, the quarter's revenue growth would have been even more modest.
"The levelling-off of growth is more a function of the direction of the market than of any strategic misstep by the company," Saunders said in comments emailed to Retail Dive. "And in categories, such as wearables and connected home, where there are higher levels of consumer interest, performance was better. In essence, Best Buy is still a highly relevant retailer that is holding its own against the competition."
The retailer must continue to think outside the box as demand for smartphones falls, and its tech services, which executives said will continue to be a differentiator, are key to its medium- to long-term performance, Saunders noted. "Given its reliance on technology companies to develop compelling products, Best Buy's future performance will always, at least in part, be subject to factors outside of its control. On this front we do not believe the outlook is good," he said, noting that "incremental improvements" to devices are "unlikely to generate significant interest."
As for many retailers, tariffs are casting a shadow over Best Buy's prospects. Its services and its appliance sales, which are less vulnerable to the tariff impact because those purchases are less discretionary, are a buffer, Barry said. But it will be difficult to entirely avoid passing on some of their cost to customers, she also warned.
The company noted that its good performance is ongoing, saying it anticipates second quarter revenue to land between $9.5 billion and $9.6 billion, and comp sales to rise 1.5% to 2.5%. But tariffs led Best Buy to stick to its earlier guidance for the full year, reiterating revenue of $42.9 billion to $43.9 billion, comp growth of 0.5% to 2.5% and a non-GAAP operating income rate of about 4.6%, or flat to last year.