Best Buy warns that growth is slowing after strong quarter
Best Buy Co. benefited from Americans splurging on household upgrades but warned that the boost it received from reopening stores won’t last through the rest of the current quarter, sending the shares down.
Comparable-store sales in the U.S. – a key gauge of performance – rose 5%, beating analysts’ projections. But like other retailers, Best Buy said it wouldn’t provide financial guidance due to the uncertainty surrounding the coronavirus pandemic. The hints it did give about third-quarter sales disappointed investors.
The shares fell as much 5.8% to $110.62 in New York trading. The stock had advanced 34% this year through yesterday’s close, almost six times the S&P 500 Index’s advance over the same period.
After Target’s stellar results last week, investors were keen to see if its fellow Minneapolis-based retailer could also surpass expectations, and for the most part Best Buy didn’t disappoint. The gadget retailer had already given a mid-quarter update in July so investors were more interested in how the the current period was shaping up. They weren’t happy to hear that Best Buy expects its sales growth to slow from current levels and its expenses to climb now that its stores are fully reopened.
Gross profit margins in the quarter also missed estimates, due to the costs involved in fulfilling the huge uptick in online orders.
“Clearly, we are still operating in a dynamic environment, and much uncertainty remains,” Chief Executive Officer Corie Barry said in a statement.
Still, the second quarter’s performance was strong. Sales were fueled by double-digit gains in computers and appliances – key items for home classrooms and upgraded households during months on lockdown. Online sales soared 242% and made up more than half of all its U.S. revenue, up from just 16% this time last year. Gains were offset by declines in other categories like TVs, video games and services like tech support.
Sales in the first three weeks of August have risen about 20%, Best Buy said.
After closing its stores in March, Best Buy allowed customers to come back in May by appointment only, then opened nearly all of its stores June 22, bringing back about half of the 51,000 employees it had furloughed. It has now reinstated approximately two-thirds of those furloughed associates, a spokeswoman said in an email Tuesday. Executives will share more details on a call with analysts this morning.