Sunday Jan 29, 2023

Best Buy lowers outlook as Q1 results show inflation’s bite – Star Tribune

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NEW YORK — Best Buy Co. posted first-quarter results that showed shoppers pulled back on spending, while higher costs ate into profits.

The nation’s largest consumer electronics chain also cut its annual outlook, noting a deteriorating macro economic environment.

Best Buy was among a handful of big winners in the pandemic, as shoppers splurged on tech equipment like laptops to create home offices to help them with remote work or cater to the needs of their children for virtual learning. But like many retailers, Best Buy is struggling with rising costs for everything from labor to shipping. The electronics chain also had to navigate global chip shortages. Another round of COVID-19 lockdowns in China is only worsening the problem. And soaring fuel costs and the return of promotions are hurting the bottom line.

Meanwhile, Best Buy, like other retailers, is also adjusting to changing shopping behavior. Demand for electronics is cooling as consumers go back to the office and resume normal lives. Inflation is also making shoppers scrutinize their purchases. In particular, CEO Corie Barry told reporters on a call Tuesday that purchases by lower-income shoppers, who were new Best Buy customers during the pandemic, have recently fallen off.

Best Buy follows other major retailers like Walmart and Target in reporting that inflation has taken a bite out of earnings. The other big discounters also reported shifts in spending. Target said that it didn’t anticipate a lightening quick return by consumers to more normalized spending. Purchases of big TVs and appliances that Americans loaded up on during the pandemic have faded, leaving Target with a bloated inventory that must be marked down to sell.

Barry said she expected this year’s results to be weaker than last year as it lapped stimulus payments and other government support and planned for higher costs in its supply chain. But she noted macro economic conditions worsened since it provided its financial outlook in early March, which resulted in its sales being slightly lower than its expectations.

“Sustained high levels of inflation is having an impact broadly again on the consumer, who we feel is pulling back at a faster, deeper pace than we initially assumed,” Barry said.

Barry said Best Buy has a healthy inventory of products, though she noted there are still some isolated areas where there is a shortfall.

Overall, Barry said the company is preparing for an environment of softer sales, but not planning for a full recession.

Neil Saunders, managing director at GlobalData Retail, said given the multitude of challenges, Best Buy fared reasonably well. It noted that while Best Buy has suffered from out-of-stocks because of supply issues, it still has better availability than others because of its size and its strong relationship with vendors. That has helped it retain customers and spending, he noted.

Still, Saunders said he’s worried about the consumer psyche.

“Electronics are highly discretionary, big-ticket items,” he said. “This puts them directly in the firing line of households looking to trim expenditure.” He also noted that the general demand for electronics is also taking a hit from society returning to normality.

“People are home less, many have returned to the office and classroom, and leisure activities such as attending sports events and movies has risen,” …….

Source: https://www.startribune.com/best-buy-lowers-outlook-as-q1-results-show-inflations-bite/600175998/

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