Best Buy Sees Higher-Than-Forecast Q3 Revenue on 3.4% Comp Sales Increase

Q3 same-store sales growth of 4.3 percent drove a 3.1 percent bump in domestic revenue to $8.76 billion. Total quarterly revenue grew to $9.6 billion from $9.3 billion. The company forecasts Q4 same-store sales growth of flat to 3 percent.

The PC and mobile phone category slipped by a percentage point in share of overall sales mix during the quarter. Despite closing 287 Best Buy Mobile stores in the past year, CEO Hubert Joly said the retailer is investing significantly in the mobile segment -- including sales associates -- to streamline the buying process along with carriers as part of its Mobile 2020 initiative. Calling the phone buying process “complex,” Joly said Best Buy has “menu boards” to help consumers compare various promotions and plans from AT&T Wireless, Sprint and Verizon. Having all three carriers is an advantage against other third-party retailers, said Joly, acknowledging carriers’ and Apple’s competitive strength in stores.

On last week’s reports of an agreement between Amazon and Apple to officially bring more Apple products to Amazon.com at the expense of independent resellers, Joly said it’s unclear what the net effect will be: Best Buy will continue to work with Apple to “innovate and make sure we have a competitive advantage in the marketplace,” he said. In Q4, Best Buy is adding more stores to do Apple screen repair as a service differentiator to meet the trend of longer phone ownership, said Mike Mohan, chief operating officer-Best Buy U.S.

For the holiday season, Best Buy expects strong sales from TVs, with customers moving to larger screen sizes, and from games, streaming devices, screen-based voice assistant devices, smartphones, wearables, small appliances and security devices such as doorbells. On the competitive environment, Chief Financial Officer Corie Barry said the company factored in the early start to the shopping season in procuring inventory and is prepared to compete as holiday shopping trends evolve.

Joly cited a multichannel shopping strategy to make it easier for customers to shop, highlighting a Best Buy app tool designed to make it easier to compare price, reviews and features when they scan a product code with their phone. Another new app feature can tell customers if a product in their virtual shopping cart is available in the store where they are shopping, the executive said, saying it's useful because customers often use the cart as a way to keep track of a product they are following. Twenty-two percent of Best Buy app customers come into stores with the items they want in their cart, Joly said.

An “on my way” feature lets customers buying large items notify their store they are on the way for pickup so the item is ready for pickup at the front when they arrive. Customers can now find open-box items easier online and in stores, Joly said, and the company has made different product condition categories clearer along with warranty information.

On the benefit to the company of the multichannel strategy, Joly said it’s about giving the consumer choice. The benefit of picking up in store is quick availability, he said, noting 30 percent of the U.S. population lives within 15 minutes of a Best Buy store. It saves on shipping fees, and customers “tend to buy more stuff” when they go to a store to pick up a product they bought online, he said.

Inventory balance for Q3 ended Nov. 3 increased 23 percent, said Barry, attributing the rise to the calendar shift this year that resulted in Q3 ending a week closer to the holiday season. Responding to an analyst’s question on whether higher inventory receipts were partly to get in front of tariffs before the first of the year, Barry said 16-17 percent of the inventory increase was due to the additional week. The remaining 7 percent overall increase was due to some “proactive decisions,” she said, citing more activity in ports and deconsolidation areas with “a lot of companies bringing more in due to tariffs” and to typhoon-related weather delays.

On the 10 percent tariffs imposed at the end of September under Trade Act Section 301, Joly estimated some 7 percent, $2.3 billion, of total cost of goods sold were affected. Many of the products on that list were accessories, he said. Costs have been mitigated “in a variety of ways” and the impact affects a “very small portion of our business,” he said. Looking to Jan. 1, when tariffs are scheduled to rise to 25 percent, Joly said his personal view is that “the journey may not be linear, [but] the negotiations with China will progress,” and the company is working with vendors to reduce the effect if tariffs do rise Jan. 1.

On a question on the future of Best Buy stores, Mohan focused on the connected home, saying the retailer is just starting to “scratch the surface” of digital assistant technology, personal security and health and wellness. He cited “tremendous interest” in front of store real estate from current and emerging vendors who want to address future lifestyle needs.

Joly commented that the goal is to strengthen the relationship with the customer vs. focusing on specific product areas. Its current share of wallet for existing customers is 26 percent, and the goal is to expand that to a third. That’s about understanding customer needs, knowing them, bringing hardware and services to them and “being a part of their lives.” The retailer’s In-Home Advisor and Total Tech Support programs are part of the vision, he said, along with GreatCall’s phone service, designed to allow seniors to live in their homes longer. Best Buy completed that purchase Oct. 1 for $792 million.