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Best Buy stock drops as it posts broad sales decline for Q3

Consumers are pulling back on discretionary goods, turning down the wattage on Best Buy's (BBY) Q3 results.

Shares of the electronics retailer are down more than 4% early Tuesday, after the company posted mixed earnings results with net sales that came in lower than expected.

Consumers are under pressure from headwinds like higher interest rates, the return of student loan payments, credit card debt, and dwindling savings.

Net sales came in at $9.76 billion, lower than the $9.90 billion expected. Sales of appliances, consumer electronics, computing, and mobile phones all dropped, but the company saw strength in its entertainment products.

International sales saw a better-than-feared decline of 1.90%.

In the release, Best Buy CEO Corie Barry said, “These results demonstrate our ongoing, strong operational execution as we navigate through the near-term sales pressure our industry has been experiencing for the past several quarters."

She added, "In the more recent macro environment, consumer demand has been even more uneven and difficult to predict." On a call with investors, she also alluded to a fallback after electronics sales spiked during the pandemic, and pressure from the "shift back into services outside the home, like travel and entertainment; and inflation."

The earnings breakdown:

Here's what Best Buy reported, compared to Bloomberg consensus data:

Adjusted EPS: $1.29 versus $1.18 expected

Net sales: $9.76 billion versus $9.90 expected

Total US sales: -7.30% versus -5.98% expected

  • Appliances: -15.10% versus -8.20% expected

  • Entertainment: 20.60% versus 5.67% expected

  • Consumer electronics: -9.50% versus -6.00% expected

  • Computing and mobile phones: -8.30% versus -6.40% expected

International: -1.90% versus - 4.19% expected

Inventory for Q3 was 4% higher year over year, but CFO Matthew Bilunas said nearly $600 million in inventory receipts came in a few days later than expected last year, moving their numbers from Q3 to Q4. Therefore, inventory numbers are down 4%, excluding that factor.

When it comes to the holidays, Barry told Yahoo Finance on a media call that "we're balancing those inventory levels against the current sales trends we're seeing," but the company feels like its current inventory is in a good place.

Read more: 6 ways to save money on your Black Friday shopping list

The company is rethinking its real estate portfolio. It closed 24 stores this past year, and shut down nearly 100 locations, or approximately 10%, in the past five years.

In the near term, Best Buy expects to close around 15 to 20 stores per year as it looks to refresh its stores and "rightsize" its traditional gaming spaces, as PC gaming continues to see growth. It's making room for new offerings like Oura rings, projectors, e-bikes and scooters, and Lovesac home furnishing products. Barry said the company is seeing "phenomenal growth" in electric scooters.

The company is also looking to experiment with store formats. "We plan to open a few smaller stores in outstate markets to test the impact of adding new locations and geographies where we have no prior physical presence and our omnichannel sales penetration is low," said Barry on the call.

Miami Beach, Florida, Best Buy electronics retailer, Chromebook Plus laptop display. (Photo by: Jeffrey Greenberg/Universal Images Group via Getty Images)
Miami Beach, Fla., Best Buy Chromebook Plus laptop display. (Jeffrey Greenberg/Universal Images Group via Getty Images) (Jeff Greenberg via Getty Images)

Looking forward, Best Buy lowered its fiscal guidance for the 12 months ending in January 2024. Revenue for the year is now expected to come in between $43.1 billion and $43.7 billion, compared to prior guidance of $43.8 billion to $44.5 billion.

Sales are expected to see a decline of 6.0% to 7.5%, compared to the 4.5% to 6.0% decline previously expected.

But the retailer could be seeing the bottom.

"After two years of declines, we believe the consumer electronics industry should see more stabilization next year and possibly growth in the back half of the year ... we believe they are poised for growth in the coming years, benefiting from a materially larger installed base and the ongoing desire and need to replace technology as it ages," said Barry.

The company is optimistic heading into the holidays and has so far seen better year-over-year sales in the early weeks, according to Barry.

"[Best Buy is] prepared for a customer who is very deal-focused with promotions and deals for all budgets, new shopping experiences, an expanded product assortment, and fast and free fulfillment," she said in the release.

The factors that the company believes could drive higher sales compared to last year include improvement in home theater and TV sales, continuing a trend of strong performance by entertainment products. In the computing category, laptops are expected to get a pop, while gaming continues to be strong.

Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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