Best Buy Q2 Net Drops 45.1 Percent
MINNEAPOLIS-Declines in both sales and gross margin were key factors as Best Buy's second-quarter net income fell 45.1 percent to $146 million.
Net sales in the quarter, which ended on Aug. 2, were down 4 percent to $8.9 billion, including a 2.7 percent falloff in same-store sales. Gross margin dropped 340 basis points as a percentage of sales to 23.1 percent. Somewhat offsetting these factors was selling, general and administrative expenses, which declined 11.1 percent in dollars and 160 basis points as a percentage of sales, to 20.4 percent.
Hubert Joly, Best Buy's president and CEO, said the overall results were actually better than the retailer expected. Joly said the company's Renew Blue strategy--its initiatives designed to grow its online business, enhance the in-store customer experience and leverage its multichannel capabilities--is beginning to bear fruit for its bottom line, in terms of cost reductions and "cost containment" efforts.
"Like other retailers and reflected in this quarter's performance, we continued to see a shift in consumer behavior," Joly said. "Consumers are increasingly researching and buying online. As a result, traffic to our brick and mortar stores continued to decline. Yet our in-store conversion and online traffic continued to increase due to the execution of our Renew Blue strategy, which is in direct alignment with this shift."
Looking ahead, Sharon McCollam, executive vice president and chief financial officer, said the trends of continuing decline in consumer electronics sales and softness in mobile phone sales would probably lead to same-store sales decreases in the low single digits in both the third and fourth quarters. At the same time, the operating income rate in the upcoming quarters is expected to accelerate as expense reductions from the Renew Blue strategy take hold.