Best Buy Q2 revenue fell 7.2% year over year to $9.6 billion, with comps down 6.2%. Domestic revenue fell 7.1% and comps fell 6.3%, according to a company press release.
Domestic gross margin edged up to 23.1% from 22% last year, mostly due to favorable product margins, improved performance from membership offerings and higher gross profit from its health business. Inventories were down 6.5%.
Net earnings dropped 10.5% to $274 million.
Consumers stocked up on items like televisions during the height of the pandemic, but since then electronics sales have weakened considerably. That continued in the second quarter, though Best Buy executives on Tuesday said they see signs that demand is recovering.
The company is enjoying a better-than-expected back-to-school season, and expects momentum to build into the fourth quarter, executives told analysts during an earnings call.
“Our hypothesis regarding the holiday season is that the consumer largely returns to pre-pandemic behavior,” CEO Corie Barry said. “By this we mean that they will be looking for great deals and convenience and traffic will be weighted toward promotional events.”
Indeed, the consumer remains cautious, which means Best Buy is too. The company tempered its expectations for the year, saying that revenue is likely to reach between $43.8 billion to $44.5 billion (down from $43.8 billion to $45.2 billion) and comparable sales are likely to fall 4.5% to 6% (worse than the previously expected 3% to 6% decline).
Best Buy may be suffering somewhat from its specialization — with consumers less interested in electronics, they aren’t going to the stores and therefore not buying other items, either, according to GlobalData Managing Director Neil Saunders.
“So Best Buy not only loses out on the big-ticket buys but sales in smaller value areas like accessories and cables also weakens,” he said in emailed comments. “Other non-specialists selling electronics, like Amazon, Target, and Lowe’s, at least drive traffic for other reasons and have a greater possibility of converting someone to buying electronics products. From our store checks, Best Buy’s shops have been extremely quiet over the past half year which, we think, reflects this issue.”
Unlike Nordstrom, Best Buy isn’t experiencing a notable increase in credit card delinquencies, but nevertheless cautioned that losses could mount given the state of the consumer. Also unlike others, the electronics retailer isn’t grappling with higher shrink, according to Barry, who noted the retailer has long been vigilant at store entrances and benefits from stores that are well staffed.