U.S. revenue fell 2.4% year-over-year in the second quarter, driven by a 2% drop in same-store sales and a new credit card agreement that is less favorable to the company. Domestic online sales rose 22% to $581 million. The company said that growth in gaming, computing, appliances and televisions was more than offset by declines in mobile phones, tablets and services, among other categories.
International same-store sales fell 6.7%, driven by the lack of sales in China, Canada and Mexico and a negative impact from currency exchange rates. Best Buy also laid some of the blame for the poor performance at the closure of its large-format stores in China.
Looking ahead, Best Buy continues to expect that same-store sales will decline in the low single-digits in both the third and fourth quarters. The lower prospective sales are attributed to structural pricing investments, the remaining negative impact of the company’s credit card agreement and incremental investment totaling $40 million to $50 million over the two quarters to “intensify the investments in customer-facing initiatives.”
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The company’s CEO said:
Like other retailers and as reflected in this quarter’s performance, we continued to see a shift in consumer behavior: consumers are increasingly researching and buying online. As a result, traffic to our brick and mortar stores continued to decline, yet our in-store conversion and online traffic continued to increase due to the execution of our Renew Blue strategy which is in direct alignment with this shift. … Looking ahead, our goal is to continue to create a differentiated multi-channel customer experience such that every interaction customers have with us, regardless of channel, makes them a promoter of the Best Buy brand. In support of this, we will be intensifying our investments in customer-facing initiatives across both channels in the back half of the year.
The question investors are asking themselves now is if this multichannel growth can increase fast enough to offset declines in sales at the brick-and-mortar stores. Growth in online sales was down about seven points from the first quarter, when online sales rose by 29.2%. Is Best Buy just throwing good money after bad by investing more in “customer-facing initiatives?”
We expect this report to put downward pressure on the stock again. Since reporting first-quarter results in May, Best Buy has raised its dividend and shares have gained about 20%. Whether the turnaround can get rolling again will determine how much of that gain Best Buy will give back.
Shares were down about 4% in premarket trading, at $30.78 in a 52-week range of $22.15 to $44.66. Thomson Reuters had a consensus analyst price target of around $33.20 before the results were announced.
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