Best Buy Q3 better than expected, but gross margins under pressure
Best Buy reported better-than-expected fiscal third-quarter results and upped its outlook for the fiscal year, but its holiday sales projections were a bit light.
The electronics retailer delivered third-quarter revenue of $11.91 billion with earnings per share of $2 a share and $2.08 a share non-GAAP. Same-store sales for the quarter were up 2% in the US and 1.6% overall. Those gains were on top of US same-store sales gains of 22.6% in the same quarter a year ago.
Wall Street was looking for third-quarter non-GAAP earnings of $1.91 a share on revenue of $11.58 billion.
Best Buy CEO Corie Barry said the company's strategy to leverage its store and digital footprint is paying off. She noted that phone, chat and in-home sales continue to grow. In the third quarter, Best Buy reached its fastest small package online shipping times.
US online revenue in the third quarter fell 10.1% to $3.44 billion from a year ago as consumers used brick-and-mortar channels more.
Like retailers such as Walmart and Target, Best Buy said it was well positioned and had inventory for the holiday shopping season. But Best Buy's outlook also indicated a few unknowns remain amid supply chain issues.
Barry said that Best Buy is carrying 15% more inventory than a year ago, but is managing through supply chain issues. She said:
Product availability continued to improve throughout the quarter. We have pockets of constraints in areas like appliances, gaming and mobile phones. Similar to last quarter, however, we do not believe this materially limited our overall sales growth. While we have faced and continue to face supply chain challenges, including delays and higher costs, we are proactively navigating a situation that we have been dealing with for several quarters as our industry has been facing disruptions and supply constraints since early in the pandemic.
Our merchant demand planning and supply chain teams made strategic sourcing and inventory decisions early in the year to set us up well heading into holiday. And we are resourcefully adapting to the constantly evolving environment with actions like pulling up product flow, adjusting store assortment based on availability and acquiring additional alternative transportation. We have deep, long-standing relationships with our transportation and logistics vendors, and they have been incredibly supportive as we navigate.
By product category, 45% of Best Buy's sales were computing and mobile computing, with 30% from consumer electronics. Services, which are a big push for Best Buy, were 5% of third-quarter sales.
Best Buy projected fiscal fourth-quarter revenue of $16.4 billion to $16.9 billion with same-store sales growth of -2% to 1%. That projection was a bit below what Wall Street was modeling. Best Buy also said it is seeing gross profit pressure due to its Totaltech membership program, promotions and lower product margins.
For fiscal 2022, Best Buy projected revenue between $51.8 billion to $52.3 billion compared to its previous outlook of $51 billion to $52 billion. Same-store sales for the fiscal year will be 10.5% to 11.5% compared to a previous outlook of 9% to 11%.
Best Buy also authorized a regular quarterly cash dividend of 70 cents per common share.