Fewer laptops and earbuds were under the Christmas tree this past holiday season, leading to electronics retailer Best Buy having its most lackluster end-of-year season of the last few years.
In November, December and January, consumers, burdened with higher prices for food, energy and other needs, spent less on home electronics, resulting in revenue dipping about 10% compared to the same time the year before to $14.7 billion. It was the lowest it had been for Best Buy for that season in more than five years.
Best Buy's profits for the quarter and the year also dropped, though not as considerably as other major retailers like Target, which reported its earnings earlier this week. For the full year, Best Buy's profit fell more than 42% while Minneapolis-based Target's dropped 60%.
The Richfield-based electronics retailer dealt with numerous challenges in 2022 that abruptly put an end to a period of pandemic-fueled prosperity. However, for the most part, it was a setback Best Buy executives and Wall Street anticipated.
"Throughout Q4 and FY23, we remained committed to balancing our near-term response to current conditions and managing well what is in our control, while also advancing our strategic initiatives and investing in areas important for our long-term performance," Best Buy CEO Corie Barry said in a statement.
In its fiscal fourth quarter, sales fell 9.3%. Best Buy earned $495 million for the quarter, or $2.23 a diluted share. It matched analyst expectations of $14.7 billion in revenue and came in a little above the consensus prediction of $2.11 a share, however profit was still down 20.9% from the quarterly net earnings of $626 million a year ago. Best Buy shares surged past $84 in early trading Thursday but closed down 2.1% at $80.79.
On Thursday during a call with analysts, Best Buy executives said the company continues to reduce its store footprint and modify its store layouts. Throughout the last three years, Best Buy has closed about 70 large-format stores or 7% of its portfolio. Best Buy plans to close about 20 to 30 large-format stores this year with plans to close an average of 15 to 20 traditional large-format stores per year after that.
The company is shuttering 17 stores just this week.
Some of Best Buy's remaining larger stores are being converted into locations where people can have hands-on trials with new products and other stores where there is less sales floor square footage and more backroom space to fulfill orders. It's a store evolution Best Buy has tested since 2020 when a record number of online sales made it important for the company to analyze how to more efficiently fulfill online orders. It is also opening more smaller-format and outlet stores.
"The purpose of the changes we're making is, first and foremost, to meet a changing customer," Barry said, on Thursday.
Sales have slumped the entire year for Best Buy as consumers have shifted their spending to other purchases after stocking up on home electronics during the height of the pandemic. Comparable sales, those at stores open at least a year, dropped 9.9% for the fiscal year, which ended in January.
A year ago, company leaders predicted same-store sales, or sales from stores open at least a year, would decrease by 1% to 4%. However, worsening economic conditions that emerged last spring led Best Buy executives to lower their sales expectations more to a 3% to 6% drop.
During the summer, Best Buy leaders said customer demand "softened even further" and recalculated that comparable sales could be down 11%. In the fall, executives slightly raised their outlook for the full fiscal year to a 10% decline after its earnings beat analyst expectations.
Still, Best Buy continues to make investments that company leaders say will pay off in the long run. It is growing its products in new categories like electric transportation and over-the-counter hearing aids.
It is also reimagining some of its stores. At the end of last year, the retailer redesigned 40 stores to offer more in-store experiences so customers can test out technology.
The retailer is doubling down on different models to gain customers who want service help. In late 2021, it launched a customer service membership called Best Buy Totaltech that combined Geek Squad tech support, extended warranties and pricing deals.
For the current fiscal year, Best Buy predicts comparable sales to decline 3% to 6% as the consumer electronics industry continues to deal with the realities of its situation.
"At the same time, we remain incredibly excited about our industry and our future," Barry said, "there are more technology products than ever in peoples' homes, technology is increasingly a necessity in our lives and technology innovation will continue."
