As Sales Stabilize Best Buy Sees Healthier Consumer Demand

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As Sales Stabilize, Best Buy Sees Healthier Consumer Demand

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Sales results at Best Buy aren’t sending anyone out for champagne or confetti, with second-quarter revenue dropping 3% to $9.29 billion. But those numbers are better than expected, as were profits. Observers cheered the news and the company’s pronouncement that the declines that have troubled it in recent quarters are stabilizing.

Demand for laptops and tablets picked up, with computing sales rising 6% compared to last quarter. The Minneapolis-based retailer says that may auger well for the still-ongoing back-to-school season.

“With our market position, expert sales associates and compelling merchandising, we capitalized on the demand driven by customers’ desire to replace or upgrade their products combined with new innovation,” says Corie Barry, Best Buy’s chief executive officer, in the announcement.

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“We see a consumer who is seeking value and sales events, and one who is also willing to spend on high price point products when they need to or when there is new compelling technology. We are balancing our optimism in both the industry and our positioning with a pragmatic approach to likely uneven customer behavior going forward.”

As a result of that stabilization, Best Buy is raising its financial forecasts for the full fiscal year.

However, the company continues to face two familiar challenges. First, many consumers are still cautious, making them less likely to shop for electronics unless they feel they are either essential -- or substantially marked down. That’s made sales events and promotional activity more important, cutting into profits.

Second, the pandemic-fueled spending spree that drove intense gains in 2020 and 2021 means replacement cycles are still out of whack: People are unlikely to replace the TVs, appliances and smart devices they purchased until they break, or until innovations make products more compelling.

However, that trend looks to be easing. “Strong progress in its computing and mobile phones segment, which returned to 4% annual growth, suggests that the firm is finally seeing replacement cycles take hold for products purchased during Covid-19-induced lockdowns,” writes Sean Dunlop, an analyst who follows the company for Morningstar. “We continue to project a modest return to growth in 2025.”

Meanwhile, Best Buy’s investments and initiatives to improve customer experience are paying off, with the company managing to earn higher customer satisfaction scores even as it pares back expenses.

On a conference call webcast for investors, Barry said that more than 40% of digital sales are picked up in stores by customers and that 90% of those orders were available in just 30 minutes.

Membership in its paid loyalty program continues to grow, delivering better-than-expected profitability.

She said the company is encouraged by shoppers' responses to its investments in customer experience through its app. “Increasingly personalized, relevant and motivational content is driving increased engagement with our customers,” she says. “Testing has shown that customers receiving our personalized homepage are engaging in content, products and tools in our app, almost 70% more than customers who didn't receive it.”

In-store experiences improvements include updates to vendor partner offers, including GoPro, Tesla and Lovesac.

Computing is the one area the company expects to grow in the months ahead. Sales of Copilot + PCs, the company’s closely watched partnership with Microsoft’s AI technology, performed as expected. “We believe we are just at the beginning of the impact of AI on tech innovation and customer demand,” she said.

Barry also called out the company’s new branding efforts, which are focused on creating customer experiences that inspire curiosity and enable discovery. With the new “Imagine That” tagline, the company is focused on helping consumers along in their research and purchase journey.

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August 29, 2024 at 05:52PM