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Best Buy says weak electronics demand to improve in second half of 2023

Best Buy (BBY) is calling a bottom on weak electronics demand.

After seeing comparable sales decline 10% in the first quarter, Best Buy sees the picture slowly improving over the final nine months of the year. The company reaffirmed its guidance of full-year revenue declining in the mid single digits.

"Our guide for the year implies that we expect year-over-year comp performance to improve as we move through the year and we lap the comparable sales declines we experienced last year," Best Buy CEO Corie Barry said on the company's earnings call. "Based on what we can see right now, we continue to believe that calendar 2023 will be the bottom for the decline in tech demand."

The tech retailer has struggled to match sales comparisons from the pandemic boom over the past several quarters. The most recent quarter's negative comparable sales growth marks the sixth straight quarter of declines in the category.

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Still, Best Buy's profits surprised Wall Street to the upside in the first quarter with adjusted earnings per share of $1.15 versus analyst estimates of $1.11, per Bloomberg consensus data. The company's $9.47 billion in quarterly sales fell short of the Street's $9.54 billion estimate.

Best Buy stock rose as much as 3% on Thursday before paring gains.

Best Buy has seen precipitous drops in sales within its appliance and consumer electronics categories, falling in line with the discretionary spending slowdown called out by Target (TGT) and Home Depot (HD). Barry noted on the call that they've been discussing consumers "clearly making trade-off" decisions for the past nine months.

"What we would say is we've been seeing a consumer who is, whether or not you call it a recession, exhibiting some recessionary behaviors depending on the different category that you're talking about," Barry said. "So it's absolutely unusual. I think as we look ahead, we start to feel like you see the turn in the business as you head out the back half of this year and into next year."

But Best Buy sees things turning around this year, largely due to the cyclical nature of their products. Consumers upgrade or replace tech on a three-to-seven-year timeframe, per Barry, and the second half of this year will mark three years since the pandemic-influenced upgrades made in the second half of 2020.

There will also be more innovative products released in the second half of the year, according to Best Buy. The company pointed to the recent success of the Zelda software on Nintendo Switch and "stronger than expected" pre-orders for the Asus handheld gaming system as signs that consumers are still responding well to new products.

FILE - A woman walks with a boy to the Best Buy store at the Mall of New Hampshire, Tuesday, Aug. 4, 2020, in Manchester, N.H. Best Buy reported declines in fiscal first-quarter sales and profits, Friday, May 25, 2023 as the nation’s largest consumer electronics chain continues to wrestle with a consumer spending slowdown in gadgets. However, the company’s profit beat Wall Street expectations even as sales were below expectations. (AP Photo/Charles Krupa, File)
A woman walks with a boy to the Best Buy store at the Mall of New Hampshire, Tuesday, Aug. 4, 2020, in Manchester, N.H. (AP Photo/Charles Krupa, File) (ASSOCIATED PRESS)

Best Buy is also banking on the artificial intelligence boom to help improve efficiency. The retailer is implementing AI to help summarize calls and streamline the organization's ability to identify trends in consumer complaints.

"This new capability allows our agents to both fully focus on the customer during the call and reduces time between calls, lowering overall costs and improving agent satisfaction," Barry said.

Josh is a reporter for Yahoo Finance.

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