Best Buy Shares Jump as Online Sales Climb -- 3rd Update
August 23 2016 - 5:03PM
Dow Jones News
By Paul Ziobro
Best Buy Co. reported a surprise increase in its fiscal
second-quarter sales, helped by a jump in its online business and
an apparent gain in market share.
The Richfield, Minn., electronics chain's sales rose less than
1% at established stores, which was better than the company's
projections for flat sales. The gain came during a period that the
Commerce Department said overall U.S. sales at electronics and
appliance stores fell 3.9%, and other retailers including Target
Corp. said their electronics businesses were laggards.
Shares rose 20% to $39.23 at 4 p.m. in New York Stock Exchange
trading on Tuesday. The gain, the highest among companies in the
S&P 500 on Tuesday, represented the stock's largest one-day
percentage increase since January 2001 and the stock's highest
close since March 2015.
Results were helped by continued strength in Best Buy's digital
business. Online sales rose nearly 24% compared with a year
earlier. The company said it logged more visits to its website, and
the average size of online orders rose. The digital business
continues to offset declines in store traffic, as shoppers
increasingly wait to enter stores only when ready to complete a
purchase.
Best Buy isn't seeing the same slowdown in online sales growth
as some others because a large share of consumer electronics have
already moved to the web. The chain also has made improvements to
its e-commerce business that are paying off. "It's a combination of
having a big market along with making some strides in e-commerce,"
UBS retail analyst Michael Lasser said.
The numbers suggest Best Buy is winning market share in consumer
electronics and is somewhat slowing the intrusion of online-only
retailers such as Amazon.com Inc. Best Buy gets about 11% of its
domestic revenue, or $4 billion last year, from online sales, a
figure dwarfed by Amazon, which sells a wider assortment of
merchandise and had about $100 billion from its e-commerce business
last year.
Chief Executive Hubert Joly said Best Buy's online market share
trails its overall share of the electronics category. But it is
making gains by offering free two-day shipping on orders of greater
than $35 and by sifting through online product reviews to highlight
the key pros and cons.
"We don't see it as a zero-sum game," Mr. Joly said of the
online business, which gives the company a chance to sell
installation services along with its appliances and home-theater
systems. Best Buy also has built a large business around reselling
returned gadgets as "open box" or clearance items.
Another change in the quarter ended July 30 was Best Buy's
decision to narrow the delivery window for major appliances to four
hours. "Who wants to sit around and wait for the entire day for the
appliance to show up?" Mr. Joly said, though the change caused some
disruptions in the quarter.
Domestic appliance sales rose 8.2% on a comparable-store basis,
the strongest category for the company though down from 21% growth
in the first quarter. Home Depot Inc. and other chains also have
posted strong appliance sales recently as Americans spend on
renovating their homes., and the category has attracted new
entrants like J.C. Penney & Co
Looking forward, Best Buy forecasts revenue will grow slightly
in the second half of the year, helped by new products such as the
latest Apple Inc. iPhone.
The chain's domestic business was helped in the second quarter
by higher sales of wearables such as Fitbits as well as demand for
television sets and appliances, offsetting declines in mobile
phones and games. Chief Financial Officer Corie Barry said declines
in tablet computers and mobile phones weren't as bad as initially
projected for the period.
Executives also played down fears that rapid price declines for
ultra high resolution televisions and more selection at retailers
like Target and Wal-Mart Stores Inc. would hurt Best Buy's business
significantly.
Mr. Joly said the chain's assortment, close partnership with
vendors and store displays for home theater should help it perform
better than the competition. Plus, prices for so-called 4K TVs have
been falling for some time, as is typical with new technologies.
"There's nothing new here," Mr. Joly said.
Overall, Best Buy reported a quarterly profit of $198 million,
or 61 cents a share, compared with $164 million, or 46 cents a
share, a year earlier. Total revenue edged up a fraction to $8.53
billion. Analysts had expected $8.4 billion in revenue.
Joshua Jamerson contributed to this article.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
August 23, 2016 16:48 ET (20:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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