Update on Best Buy

Yesterday (22nd May), Best Buy’s first quarter results showed that declining sales continue to plague the electronics retailer.

For the 13 weeks ended 3^rd May, Best Buy took revenue of around $9bn, down from some $9.3bn reported in the same period last year.

Domestic sales came in at $7.8bn, marking a 2% decline from last year, though on a like-for-like basis the drop was 1.3%.

Meanwhile, international sales plunged a notable 10.5% to $1.3bn – down 5.8% on a like-for-like basis. The decline, according to the company, was partly down to adverse currency movements.

Net profit for the period came in at $461m – up from a loss of $81m reported last year, though last year’s loss was predominantly due to discontinued operations in Europe.

The company’s shares, which have been hammered lately (following something of a boost last year), are currently up around 2%, though the total descent this year alone is around 38%.

Best Buy’s challenges…

Looking ahead, the company anticipates sales declines on a like-for-like basis in both the second and third quarter.

That’s due to weak demand facing many of the consumer electronics categories in which the company competes, the company said. In mobile devices, for instance, Best Buy expects soft demand as consumers “eagerly await” new product launches.

Well, Best Buy’s challenges are well known and have been widely discussed. Weak demand aside; the company also faces stiff competition from online players (notably Amazon).

Yes, Best Buy is currently engaged in a turnaround strategy to combat said challenges – that includes cost-cutting measures to help support margins; price matching to lure back customers; and ramping up its online presence.

And yes, the company’s making progress: its cost-cutting efforts are certainly helping margins; and Best Buy claims market share gains in the US, thanks to its improved price competitiveness.

Meanwhile, headway on the online front is there to be seen: online sales increased a healthy 29.2% to $639m in the quarter versus the previous year.

The problem, however, is that if overall revenue continues to decline, Best Buy’s margins are bound to begin to suffer.

For starters, the company needs to invest in a bid to chase growth. Meanwhile, there’s only so much cost cutting Best Buy can do.

Certainly, it’s apparent that the company’s turnaround efforts are making some way, but challenges undoubtedly remain for now.

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