Best Buy posts stellar set of sales numbers
Best Buy has reported better than expected Q4 results and also provided a 2019 outlook above analysts' estimates.
“We are excited to report strong results for the fourth quarter and the year,” says Hubert Joly, Best Buy Chairman and CEO. “We are especially proud of our 9% comparable sales growth in the quarter, which brings our annual comparable sales growth to 5.6% for the year. Customers are responding very positively to our Best Buy 2020 strategy, and I want to enthusiastically thank all our associates for their great work in delivering these results. The level of energy and dedication to serving customers that I see across the company is truly inspiring.”
This is further proof that the American consumer was very active during the final quarter of the year, according to Neil Saunders, Managing Director at GlobalData Retail. “High confidence and gains in disposable income both helped to drive the 14% uplift in revenue at the electronics giant. Admittedly, an additional week of trading also had an impact, but even when this is removed sales still grew by an above-average 8%,” he says.
He adds: “As much as strong consumer confidence aids electronics sales, it is useless unless there are products people want to buy. On this front, the technology release cycle was much more favourable this year with a good line-up of mobile phones, gaming devices, and home theatre products all stimulating demand. The later launch of the new iPhone also meant that the softness in last quarter's phone sales was made up for in this period.”
Unfortunately, success on the revenue line did not flow through to the bottomline. For the period, operating income fell by 1%, and net income slumped by 40%. The former is mostly a function of higher staff compensation, some investment costs, and a less profitable product mix. On top of this, elevated tax expenses eroded net income still further.
Looking ahead, it is unlikely that Best Buy will maintain this level of revenue growth. That said, Saunders expects comparable sales to remain positive over the full fiscal year. “We also believe that Best Buy will be a beneficiary of the rise in disposable incomes because of the tax cuts. Some, but not all, of the bonus payments now being given will be put towards the purchase of electronics,” he says.
The retailer also announced the closure of its 250 small-format mobile phone stores. "As much as this format once allowed Best Buy to tap into a very fast-growing category, cell phone sales growth is now far less impressive. Ultimately this means that the economics of the stores no longer stack up," comments Saunders. "With technology becoming more integrated, we also believe that the rationale for a standalone mobile store has faded. Given that 85% of Best Buy’s mobile stores are within three miles of one of its big box stores we are confident that the move will not result in the loss of too many customers."
