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Mon. Jul 22nd, 2024

Best Buy Reports Fiscal First Quarter: Comparable Sales Down 6.1%

By Vaseline May30,2024
Best Buy Reports Fiscal First Quarter: Comparable Sales Down 6.1%

Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please review our website policies before making any financial decisions.

Best Buy Co., Inc. (NYSE: BBY) reported its financial results for the first quarter of fiscal year 2025 (Q1 FY25), ended May 4, 2024.

The company announced that operating revenue for the quarter was $8.85 billion, down from $9.47 billion in Q1 FY24. The domestic segment saw a 6.8% decline in revenue, totaling $8.20 billion, while the international segment saw a 3.3% decline, bringing in $644 million. The company’s comparable sales declined 6.1%, with domestic comparable sales down 6.3% and international comparable sales down 3.3%.

Despite the sales decline, Best Buy reported a slight increase in profitability. GAAP diluted earnings per share (EPS) rose to $1.13 from $1.11 last year, while non-GAAP diluted earnings per share rose to $1.20 from $1.15.

The company’s GAAP operating income as a percentage of revenue improved from 3.3% to 3.5%, and non-GAAP operating income grew from 3.4% to 3.8%. CEO Corie Barry highlighted that the company managed its profitability well despite a challenging sales environment, taking steps to grow its paid membership base and improve customer experiences. Domestic segment gross profit increased to 23.4% from 22.6% last year, mainly due to improved financial performance in the services category, including membership offerings.

However, lower product margins partially offset this and reduced profit sharing revenue from the company’s private label and co-branded credit card agreement. Domestic selling, general and administrative (SG&A) expenses were reduced to $1.60 billion, or 19.5% of sales, compared to $1.71 billion, or 19.4% of sales, last year, mainly due to lower personnel costs and lower car rental costs.

Best Buy exceeds EPS forecasts, but lags first-year revenue

Comparing Best Buy’s first-quarter FY25 performance to market expectations, the company slightly exceeded EPS forecasts but fell short of revenue.

Analysts had expected earnings per share of $1.08, but Best Buy delivered GAAP diluted earnings per share of $1.13 and non-GAAP diluted earnings per share of $1.20. This performance reflects the company’s ability to manage costs effectively and maintain profitability despite decreased sales.

However, sales came in below the expected $8.97 billion, while the actual figure was $8.85 billion, indicating softer-than-expected sales. CEO Corie Barry acknowledged the challenging sales environment and attributed it to macroeconomic factors.

The biggest drivers of the comparable sales decline in the domestic segment were appliances, home theater, gaming and mobile phones, partially offset by growth in the services and laptop categories. The international segment also saw a decline in sales and gross profit, with the latter falling to 22.8% from 23.7% last year due to lower product margins.

Despite disappointing sales, Best Buy’s operational efficiency and strategic focus on high-margin services helped soften the impact on profitability. The company’s ability to beat earnings expectations suggests that its cost management strategies and emphasis on services and membership offerings are paying off.

Best Buy maintains fiscal 2025 guidance and expects earnings per share between $5.75 and $6.20

Best Buy maintains its guidance for the full fiscal year 2025. The company expects sales to be between $41.3 billion and $42.6 billion, with comparable sales expected to decline 3.0% and remain flat.

Non-GAAP corporate operating income is expected to be between 3.9% and 4.1%, and non-GAAP diluted earnings per share are expected to be between $5.75 and $6.20. Capital expenditures are expected to be approximately $750 million. CFO Matt Bilunas expressed confidence in achieving profitability at the high end of non-GAAP operating income guidance, citing a higher gross profit percentage in the membership and service offerings.

For the second quarter of FY25, Best Buy expects comparable sales to decline approximately 3% and non-GAAP operating income to be around 3.5%. Despite ongoing retail challenges, the company remains optimistic about sequential improvement in comparable sales performance throughout the year.

Best Buy’s strategic priorities for FY25 include strengthening its position in key categories such as computers, home theater and major appliances through differentiated experiences, targeted marketing spend and competitive pricing. The company also aims to improve its membership base and customer experiences by leveraging new technological innovations.

Disclaimer: The author does not own or have a position in any of the securities discussed in the article.

About the author

Tim Fries is co-founder of The Tokenist. He has a B.Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim was a Senior Associate in the investment team of RW Baird’s US Private Equity division, and is also co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.

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