Best Buy sees higher profit as consumers enticed by new tech

Best Buy Co. raised its earnings guidance for the year, a sign that its turnaround efforts are starting to bear fruit as consumers begin upgrading Covid-era purchases with new products incorporating innovations like artificial intelligence.

The retailer now expects adjusted earnings per share to be as high as $6.35, up from $6.20 previously, citing greater-than-expected profitability in the first half. It took a cautious note, however, downgrading the high end of its annual comparable sales forecast to a 1.5% decline from flat previously.

The company’s shares jumped 18% at the start of regular trading in New York, the biggest intraday gain since March 2020. The stock had risen 12% year to date through Wednesday’s close, compared with a 17% gain for the S&P 500 Index.

Best Buy has been trying to reverse its streak of negative sales. Consumers have stayed on the sidelines after buying laptops and other electronics during the pandemic. Inflation and interest rates have hurt discretionary spending, as shoppers prioritize necessities. Higher-ticket categories like appliances have been especially squeezed.

Best Buy executives said they expect consumers to upgrade or replace their technology products over the next few years. Slower innovation has hampered shopper appetite, but they anticipate new products such as artificial-intelligence computers and Apple Inc.’s new iPads to help boost spending.

“We believe we are just at the beginning of the impact of AI on tech, innovation and customer demand,” Chief Executive Officer Corie Barry told analysts on a call.

In the second quarter, comparable sales declined by less than what Wall Street analysts expected as the US computing and tablet categories grew. Adjusted earnings per share also beat analysts’ estimates.

Barry told analysts the company continues to expect sales in the computing category and services to show growth for the year, as the industry shows “increasing stabilization.”

“Best Buy’s top line may remain under pressure at least through fiscal 2Q, but a return to growth could be nearing” thanks to new products and replacement needs, Bloomberg Intelligence analyst Lindsay Dutch said.

Consumer Habits

During the latest earnings season, retailers have described a US consumer who is prioritizing essentials but is increasingly buying new, trendy products at the right price. Americans are still on the sidelines for larger purchases and projects partly as they wait for interest rates to drop. Such spending habits are benefitting retailers selling necessities and lower-priced discretionary products and hurting companies offering more pricey items.

Barry said that consumers are seeking value and are willing to buy technology products like laptops at high price points when they need to or see new, compelling items. “We don’t believe anything in our data signals that customer behavior has changed in a way that would make us increasingly cautious,” she said on the call.

Best Buy has also been working to shorten the time for online checkouts while improving store merchandising, a move to improve customer experience. The company has also said it plans to close 10 to 15 stores and open a few new locations to test concepts.