Best Buy is making all the right moves
An aggressive store optimization strategy and digital investments are accelerating growth at Best Buy, which reported increases in sales and earnings in its second quarter.
Total sales during the 13 week second quarter ended Aug. 4 increased 4.4 percent to $8.64 million compared to $8.27 million during the 14 week second quarter the prior year. Same store sales in the U.S. were positive 6 percent, partially offset by the loss of revenue from 292 Best Buy Mobile and 17 large-format store closures over the past year. Best Buy earned $244 million in the quarter compared to $209 million the company earned in the second quarter of 2017.
Domestic gross profit rate was 23.8 percent versus 24 percent last year. The gross profit rate decline of approximately 20 basis points was driven primarily by higher supply chain costs, including both investments and higher transportation costs, and the national rollout of the Total Tech Support subscription program, which gives shoppers improved access to Geek Squad staff.
“We are happy to report strong top- and bottom-line results for the second quarter that exceeded our expectations,” said Hubert Joly, Best Buy’s Chairman and Chief Executive Officer. “Our comparable sales growth was helped by the favorable environment in which we operate and driven by how customers are responding to the unique and elevated experience we are building. We are particularly encouraged with the continued progress of our Net Promoter Scores and our continued market share gains. We are excited about the progress we are making on the implementation of our Best Buy 2020 strategy and the opportunities in front of us.”
Best Buy’s second-quarter earnings smashed Wall Street estimates, coming in at 91 cents a share versus forecasts for 82 cents a share. Best Buy saw solid sales growth in its stores (up 6.2 percent vs. estimates for up 4.1 percent) and online (up 10.1 percent).
Best Buy Chief Financial Officer Corie Barry said, “For the full year, we now expect FY19 comparable sales growth of 3.5 percent to 4.5 percent versus our original guidance of flat to growth of 2.0 percent, and we are raising our expectation for our non-GAAP diluted EPS to a range of $4.95 to $5.10 versus our original guidance of $4.80 to $5.00.”
Best Buy has been exploring ways to bring in new sales growth, as the company recently announced that it is seeking to connect with older consumers by spending $800 million to acquire a connected-health service provider. In August, the company announced that it acquired GreatCall, a provider of connected health and personal emergency response services to the aging population, with more than 900,000 paying subscribers. According to Best Buy, GreatCall offers an innovative combination of easy-to-use mobile products and connected devices tailored for aging consumers. In addition, the company claims to having a range of services, including a simple, one-touch connection to trained, U.S.-based agents who can connect the user to family caregivers, provide general concierge services, answer service-related questions and dispatch emergency personnel.
On March 1, the company announced its intent to close all of the remaining 257 Best Buy Mobile stand-alone stores in the U.S. As a result, all revenue related to these stores has been excluded from the comparable sales calculation beginning in March 2018.