Best Buy (NYSE:BBY) is grappling with sluggish sales as consumer demand dwindles following a pandemic-driven spike. The electronics retailer posted mixed fiscal 2025 first-quarter results on Thursday before the market opened. While adjusted earnings per share were $1.20, surpassing estimates of $1.08, net sales fell to $8.85 billion from $9.47 billion a year ago, missing the anticipated $8.97 billion for the quarter.
CEO Insights
CEO Corie Barry, in a call with Yahoo Finance, mentioned that consumers are prioritizing essentials like food, fuel, and lodging, leading to uneven spending patterns. Best Buy’s total US sales dropped by 6.3%, with significant declines in appliances (down 18.5%), entertainment (down 11.3%), and consumer electronics (down 8.3%). Computing and mobile phones saw a smaller decrease of 2.2%, compared to the expected 4.17% decline. International sales fell by 3.3%.
Online and Service Sales
Online sales also decreased by 6.1% in the quarter, although they constituted 30.8% of total US revenue, slightly up from 30.5% a year ago. The company’s service category, which includes membership offerings, helped boost profit in the US, contributing to “better-than-expected Q1 profitability,” according to Barry.
Financial Adjustments and Workforce Changes
The domestic gross profit rate improved to 23.4% from 22.6% last year. Best Buy incurred $15 million in restructuring charges due to severance. Barry explained that the company “re-engineered” its workforce, increasing the number of frontline associates and reducing leadership layers to cater to the growing trend of in-store pickups.
Fiscal Year Outlook
For the fiscal year, Best Buy reiterated its guidance, expecting overall sales to decline between 3% and 0%. Before the report, the stock had fallen roughly 7% year to date, compared to an 11% gain for the S&P 500 (^GSPC). Shares of Best Buy surged more than 11% on Thursday morning following the report. Citi analyst Steven Zaccone noted that given the stock’s year-to-date weakness, he anticipated shares would trade higher due to improved profitability.
Challenges and Optimism
Concerns about discretionary spending and uncertainty regarding the replacement cycle cloud the company’s outlook. Bank of America analyst Robert Ohmes, who has an Underperform rating on the stock, expects continued weakness in the appliance category due to year-over-year price declines, higher retail promotions, and market share pressures from competitors like Costco.
Despite these challenges, Barry remains optimistic about innovation in AI potentially kickstarting the replacement cycle sooner. AI-focused products, such as PCs and Samsung’s AI-enabled phone, are expected to attract consumers due to their higher value propositions.
New Product Launches
Preorders for AI laptops have slightly exceeded early expectations, although overall numbers remain low as consumers prefer to research and see the laptops in person. The HP (HPQ) EliteBook Ultra AI PC is set to debut on June 18. Barry added that as new products are released at higher prices, older generations might be discounted, appealing to those looking to upgrade.
Market Momentum
Joe Feldman of Telsey Advisory Group expects more momentum as “new technology hits the market” for the back-to-school season. Similarly, Jonathan Matuszewski at Jefferies noted that the “replacement cycle [is] picking up steam,” with customers showing interest in consumer electronics, gaming consoles, home theater systems, and related products.
Earnings Breakdown
Here’s a breakdown of Best Buy’s reported results compared to Wall Street estimates (per Bloomberg consensus):
Adjusted EPS: $1.20 vs. $1.08
Net Sales: $8.85 billion vs. $8.97 billion
Total US Sales: -6.30% vs. -5.02%
Appliances: -18.50% vs. -9.92%
Entertainment: -11.30% vs. -2%
Consumer Electronics: -8.30% vs. -6%
Computing and Mobile Phones: -2.20% vs. -4.17%
International Sales: -3.30% vs. -3%
Best Buy expects revenue for the year to be between $41.3 billion and $42.6 billion. For Q2, the company projects same-store sales to decline by approximately 3%.
Featured Image: Freepik
