Best Buy on Tuesday reported that second quarter domestic revenue rose 3.5% year over year to $9.13 billion (overall revenue, with international sales, reached $9.9 billion). Online revenue rose to about 53.1% of domestic revenue, compared to 16.1% last year, the largest quarterly digital take in the company's history, CFO Matt Bilunas told analysts.
Domestic store comps, (including stores temporarily closed or using curbside-only fulfillment due to COVID-19), rose 5% despite the loss of revenue from 25 permanent store closures in the past year. Domestic online comparable sales rose 242.2% to $4.85 billion, "primarily due to higher conversion rates and increased traffic," according to a company press release.
Domestic gross profit declined about 120 basis points to 22.8% from 24% last year, mostly because of higher supply chain costs from the online sales increase and lower profit-sharing revenue from private-label and co-branded credit card arrangements. Net income rose to $432 million from $238 million last year.
Best Buy experienced few of the pressures besetting apparel retailers — home-bound consumers have less need or desire for new clothes than ever at the moment — yet shares fell early Tuesday nevertheless.
Bilunas said mobile sales were relatively tepid in the period but that sales of appliances, big-screen televisions and other devices that enable home-based learning, working, cooking and entertainment were brisk. Investors are likely worried that consumers now have what they need, so may not return to Best Buy. But on a conference call with analysts, executives sought to paint the current quarter as at least as strong as the second. So far, in the first three weeks of August, total sales are up about 20% year over year, they said.
Some analysts don't see demand waning, and view Best Buy as well prepared to meet it with efficiency. "[W]e expect Best Buy to continue to benefit from consumers' increasing need to upgrade their home technology, electronics, and appliances, given that many companies are likely to maintain work-from-home policies well into 2021 and a majority of schools are adopting virtual learning," Telsey Advisory Group analyst Joseph Feldman said in emailed comments. "These catalysts should further strengthen Best Buy's position as a winner in retail, helped by its consistent market share gains, stable profitability, leading omni-channel capabilities, solid cash flow generation, healthy balance sheet, and strong management team."
Stores were key for the electronics retailer even when they were closed or open with limited hours as customers shopped online and picked up purchases curbside — an important differentiator at a time when Amazon is cleaning up in most categories. Some 60% of what the retailer sells flows through the store — in-store sales, BOPIS sales or ship-from-store, according to CEO Corie Barry. Mobile sales were likely somewhat weaker because they are more dependent on in-store selling, Bilunas said.
"Our stores are a unique and powerful asset for us," Barry said on the call, noting that once stores did open, there weren't enough associates working enough hours to keep up with demand at first. The retailer is bringing back more workers to address that, executives said. Despite a pay hike and those added hours, expenses will remain under control, Bilunas said. Second quarter domestic selling, general and administrative expenses reached $1.56 billion or 17.1% of revenue, versus $1.76 billion or 19.9% of revenue last year, the company said.
"An uplift of 5% in US comparable sales is particularly impressive given that most stores were open on an appointment only basis for the first six weeks of the quarter," GlobalData Retail Managing Director Neil Saunders said in emailed comments. "On the bottom line, operating profit rose by 81%, while net income was up by almost 82% – both of which underline Best Buy's operational efficiency at a time when the cost of doing business was driven up by various restrictions and health and safety measures."
As the COVID-19 pandemic lingers, consumers are likely to continue to spend on the items offered by Best Buy because they're not spending on pursuits like dining out or travel, at least for a while, Saunders noted, but warned that: "this pace of growth cannot and will not last indefinitely. As we enter the back end of the year demand may moderate to a more normalized level."