Best Buy's first-quarter profit fell 43%, but its stock price rose against the trend!

On May 24, Best Buy released its financial report for the first quarter of fiscal year 2023, showing a decline in revenue and profits.

Best Buy's revenue and profit both declined

According to the financial report, Best Buy's revenue in the first quarter was $10.6 billion, slightly higher than the market expectation of $10.4 billion, but down 8.5% from $11.6 billion in the same period last year. Net profit was $341 million, down 43% from $595 million in the same period last year. The company's chief financial officer said that the main reason for the decline in revenue was the weak sales of products such as computers and home theaters, and the decline in profits was mainly due to lower product profits and higher supply chain costs.

Although both revenue and profit declined, Best Buy's stock price rose 2% against the trend after the financial report was released. As of the close of the day, its stock price rose 1.21%.

Earlier, Wal-Mart and Target reported that although their revenues grew, their profits fell short of expectations. Target said that sales of large items such as TVs and kitchenware declined. These products are Best Buy's main products. As a result, Best Buy's stock price fell 16% last week. However, Best Buy's first-quarter financial report showed that its revenue was higher than market expectations, so its stock price rebounded.

By business, Best Buy (USA) domestic revenue was US$9.89 billion, down 8.7% year-on-year. The gross profit margin in the domestic market was 21.9%, lower than 23.3% in the same period last year. Among them, online channel revenue was US$3.06 billion, down 14.9% year-on-year, accounting for 30.9% of the domestic revenue scale, which is twice the proportion before the epidemic, but still lower than last year's 33.2%.

International revenue was $753 million, down 5.4% year-on-year, but gross profit margin reached 24.3%, slightly higher than 23.7% in the same period last year.

Best Buy expects that due to the lack of stimulus spending similar to last year (such as child tax credits), coupled with inflation and increased consumer experience spending (such as travel), the weak consumption trend in the first quarter will not disappear in the short term, but will continue into the second quarter.

For the full-year revenue forecast, Best Buy said that there is still great uncertainty in the future market situation, but under the influence of factors such as inflation, stock market fluctuations and the conflict between Russia and Ukraine , the company's revenue is expected to decline by 3% to 6% year-on-year in fiscal 2023 , and the full-year revenue will be between US$48.3 billion and US$49.9 billion . The previous forecast was that the full-year revenue would decline by 1% to 4% year-on-year, and the revenue scale would be between US$49.3 billion and US$50.8 billion .

Best Buy also revealed that the average selling price of its products has increased over the past two years due to a variety of factors. Due to product shortages, the company had fewer promotions and price cuts during most of the pandemic. At the same time, due to rising shipping costs and component costs from its suppliers, its commodity costs were higher, further increasing product prices.

The company's CEO said that despite the expected slowdown in revenue, Best Buy is still in a better position than before the epidemic from the perspective of revenue and profit margin. At the same time, the company will not shrink its business. "Consumer electronics is a stable industry, and the performance of the market in the past two years has proved the importance of technology products in people's lives." Best Buy will increase spending on promotional activities and supply chains in the future.

However, some analysts believe that factors such as inflation and rising interest rates will affect the purchasing intention of Best Buy's low-end consumers. "Considering Best Buy's lack of product pricing power, these unfavorable factors may be difficult to alleviate."

With sluggish growth in electronic products, Best Buy enters multiple fields

Best Buy said in its earnings call that the company will continue to advance its category expansion strategy , with new products including electric travel tools, furniture, skin care technology products , etc.

Some analysts believe that Best Buy is one of the biggest beneficiaries of the epidemic. During the epidemic, the demand for home computers, monitors and other products has surged. At the same time, as people spend more time at home, they will buy more kitchen appliances, TVs, home theater systems and other products to pass the time. As the leading consumer electronics retailer in the United States, Best Buy's performance has grown rapidly.

However, after rapid growth, Best Buy is facing the dilemma of sluggish growth. As consumers return to social activities, sales of electronic products have weakened. Market research firm NPD Group said that the consumer electronics industry has achieved rapid growth in the past two years , but demand in the industry will decline in the next three years. NPD predicts that US consumer electronics revenue will fall by 5% in 2022, 4% in 2023 , and 1 % in 2024 .

In addition, according to Global Data, an international consulting agency , electronic products are discretionary and expensive items. With rising prices, they will become the primary target for households to cut spending . In the past decade, most of Best Buy's sales growth came from products such as computers, televisions and home appliances. This means that Best Buy must find new business growth points when the consumer electronics market may shrink.

In early May, Best Buy announced that it had begun selling skin care devices, including facial steamers and microdermabrasion devices, in its stores and on its website. Best Buy said that more product lines will be launched in the coming months. In addition, Best Buy currently sells hundreds of electric transportation products on its website, including electric bicycles, scooters, mopeds and accessories.

Whether it is skin care products, outdoor furniture or electric vehicles, they are all categories that have begun to rise due to the impact of the epidemic. Best Buy said that these new products cater to consumers' needs for going out and socializing, and the company will obtain consumption trends from customer feedback and website data. For example, some customers will ask if there are outdoor furniture products when buying TVs or speakers.

In fact, Best Buy has gradually expanded its product supply categories in recent years. For example, it launched connected fitness products in 2019 and began selling suitcases and outdoor grills in the same year. In November last year, Best Buy acquired outdoor furniture manufacturer Yardbird, and not long ago, Best Buy announced that it would launch a new series of furniture products. Best Buy said that even in the field of consumer electronics, Best Buy still has a lot of revenue from emerging products such as wearable devices and AR devices.

Last year, Best Buy also launched its own annual membership plan, Totaltech, which costs $199.99 . Similar to Prime, Totaltech members will receive exclusive discounts when shopping, and can also enjoy extended product warranties, free shipping and other services. Best Buy said this will increase the frequency and amount of consumer spending.

Some analysts said that through these measures, Best Buy can maintain its leading position, expand its market and attract more consumers.

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