Best Buy takes a hit from inflation but says appliances and clearance outlets are bright spots

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Best Buy Co. Inc. missed a profit in the first quarter as inflation was hitting the consumer electronics retailer, but there are areas of the business that show continued promise in volatile times.

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“As it relates to product pricing, we have seen our average selling prices increase” [ASP] Because of a number of factors over the past two years,” said Chief Executive Corey Barry on the earnings call, according to FactSet.

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“First our product sales mix has changed, as customers have mixed in premium products at higher price points. This has been happening for years and has intensified during the pandemic. Additionally, we’ve driven physical growth in devices that carry higher ASPs and have become a large part of our mix.

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Lowe’s cos. low,
-1.61%
Chief Executive Marvin Ellison spoke with MarketWatch last week about the ongoing strength in the home improvement category, which could bode well for Best Buy.

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Lowe’s CEO Marvin Ellison says working from home and a strong housing market continue to fuel the home improvement retailer

Customers are also moving to Best Buy BBY,
+0.30%
Outlets that sell clearance, open-box merchandise, and “distressed inventory,” such as televisions and appliances.

“Last year, we estimate that approximately 16% of outlet customers were new to Best Buy and 37% were Best Buy customers,” Barry said.

“In FY2023, we plan to double the number of outlets by opening 15 additional stores, and we are expanding our assortment beyond flagship devices and large TVs to include computing, gaming and mobile phones. “

Barry said Best Buy, like many other retailers and customers, is feeling the squeeze of inflation, with labor, marketing and supply chain costs rising. The company expects more promotions, with this year increasingly resembling FY20. Computing began to become more hyped last July, and televisions are becoming more so.

Best Buy has reached a point where earnings compared to two years of unusually high demand as consumers shopped to live and work from home. By this standard, GlobalData says the results for this most recent quarter are “reasonable.”

“Best Buy remains a bigger and more profitable business than it was before the pandemic – and that is the true benchmark against which it should be judged,” wrote Neil Saunders, managing director of GlobalData.

“The numbers are even distributed against a more challenging backdrop, with certain factors working towards pincer demand. Conversely, the results could have been much worse; That they weren’t was a testament to Best Buy’s relative strength in the market and its operational prowess.

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GlobalData also highlights the macro environment in addition to inflation, which has taken a toll on best buying results, including the war in Ukraine and chip shortages.

“Clearly, in our view, that investors were prepared for this (post-Target/Walmart), the results were better than anticipated, and expectations should be re-calibrated appropriately because we are a very Proceed in difficult operating environments,” Wells Fargo wrote in a note.

Wells Fargo rates Best Buy stock with equal weight below $115, with an $82 price target.

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Best Buy shares slipped 0.8% in Tuesday’s trading, and are down 29.1% for the year to date.

broad s&p 500 index spx,
-1.24%
So far for 2022 has fallen 18.1%.

Credit: www.marketwatch.com /

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