Following a first quarter during which it beat analyst estimates, Best Buy provided insights into its retail and marketplace growth, as well as how the company is boosting its lagging appliances business.
Best Buy’s first-quarter net earnings were $276 million, or $1.31 per diluted share, versus $202 million, or 95 cents per diluted share, in the quarter a year prior. Adjusted for one-time events, the company noted that earnings per diluted share were $1.28, up from $1.15 in the year-earlier period.
A Zacks Investment Research analyst consensus estimate called for Best Buy’s first-quarter earnings of $1.22 per adjusted diluted share and revenue of $8.81 billion.
Comparable sales gained 2% in the quarter year over year, the company indicated. Revenues were $8.94 billion versus $8.77 billion in the year-before period. Operating income was $370 million versus $219 million in the year-previous period, while adjusted operating income was $363 million versus $333 million.
Domestic revenue was $8.25 billion versus $8.13 billion in the year-prior quarter, Best Buy reported, with comp sales up 1.8% and adjusted operating income up to $358 million from $329 million.
The company reiterated its full-year financial guidance for revenue of $41.2 billion to $42.1 billion, comps down 1% to up 1% and adjusted diluted EPS of $6.30 to $6.60
Jason Bonfig, Best Buy’s chief customer, product and fulfillment officer and incoming CEO, said during the first-quarter conference that the company is pursuing store expansion through medium- and small-format locations.
“These aren’t scaled down versions of what we already have,” Bonfig (pictured above right) asserted. “They are purpose-built formats designed for how customers actually shop today. The medium format gives us flexibility to enter markets and trade areas where full-sized stores don’t fit the opportunity, but where customer demand is real and growing. These are in the 20,000-25,000 square foot range. The small format lets us get closer to the customer in dense urban neighborhoods, suburban centers and communities that have been underserved. These are in the range of 12,000-15,000 square feet. Both formats are built around speed, curated assortment, expert service and a seamless connection to our broader fulfillment network.”
Bonfig characterized the medium- and small-format growth initiative as a major step forward, because it expands Best Buy’s reach without compromising the customer experience.
“It gets us closer to more customers more often,” he said. “When we place a store closer to a customer, not only does it see our sales and share lift in that market, but it also sees a notable online growth and material lift in our multi-channel engagement within the first six months. Proximity also expands our fulfillment footprint, enabling faster small parcel ship-to-home delivery while broadening the reach of our large product delivery and installation services.”
Corie Barry, Best Buy’s outgoing CEO, pointed to gains in the company’s recently launched marketplace, where gross merchandise volume has increased appreciably.
“Our domestic marketplace GMV reached approximately $250 million in the first quarter. In fact, when including our marketplace GMV, our domestic sales growth for the quarter was more than 4%,” Barry (pictured above left) said.
The appliance business slipped in the first quarter, but Best Buy has plans to turn it around.
“Our sales in this category have been pressured for quite some time due to the stagnant housing market and a very competitive retail environment,” Bonfig said. “We’ve been testing several initiatives and are taking decisive actions in Q2 that we expect to drive improved results. These include investments in pricing, marketing, product availability and delivery speed. We’ve already seen material improvement in our trends this quarter, with month-to-date growth and demand compared to last year. Later this quarter, we also expect to implement material improvements in our digital sales experience for major appliances online.”
In announcing the first quarter financial results, Barry said Best Buy is seeing many positive signals throughout the business.
“Our comparable sales grew 2% versus last year, higher than our outlook, with positive comps across the majority of our major product categories and strong performance in our Best Buy ads and marketplace initiatives,” she said. “We also drove operating income rate expansion and EPS growth. Thanks to our incredibly dedicated employees, we are delivering on our strategy to strengthen our position in retail as a leading omni-channel destination for technology while at the same time scaling new profit streams like Best Buy ads and marketplace that we expect to provide considerable benefit over time.”
As to her departure, Barry said: “With this momentum, I believe it is the right time to transition the leadership of Best Buy, and step down as CEO later this year. With his unmatched experience and focus on the customer, I know Jason Bonfig is the right person to take Best Buy into its next phase, which is outlined by his four priorities.”
Bonfig added, “I look forward to working closely with our teams to build on the progress we are making, specifically focusing on four areas to grow our business: advancing Best Buy as a retail, media and advertising, and technology company, expanding and growing our reach, elevating the Best Buy experience and being a human-powered, customer-focused company.”
