New York - Best Buy Chief Executive Officer Hubert Joly is making good on the second part of his turnaround plan at the world’s largest electronics chain: revenue growth.
The retailer posted its fourth straight quarter of same-store gains on Tuesday, with growth of 3.8 percent in the latest period. That’s the biggest increase in four years and more than triple the 1 percent projected by analysts, according to estimates compiled by Consensus Metrix. The results sent the stock up 13 percent.
Joly is in the third year of a comeback bid at Best Buy, with mixed results so far. He initially focused on cutting costs, including selling off foreign divisions in China and Europe. Management also has devoted more shelf space to top brands, including saying on Tuesday it would increase distribution of the Apple Watch 10-fold. But investors have been waiting for a sign that the company can post consistent revenue growth.
After showing progress on that front, Best Buy stock jumped to $32.95 in New York, marking the biggest gain in two years. Before the rally, the shares were down 25 percent this year. And they had fallen 10 percent in the past six trading days alone, hurt by the broader market rout and concerns about a slowing global economy.
“It’s such a sea change from the performance and view from three years ago,” Joly said in an interview. “And we aren’t done.”
Sales were lifted by demand for major appliances, big-screen TVs, and phones, the Richfield, Minnesota-based company said. The appliance category, which has increased revenue for 19 straight quarters, has let Best Buy benefit from an improving US housing market. To better take advantage of that resurgence, the chain has added more Pacific Kitchen & Home departments, which offer better service and premium brands like Viking.
Still, Best Buy voiced uncertainty about future growth, especially with the markets in turmoil this week. In the current quarter, US sales will probably be flat or grow by a low single-digit percentage rate, the company said.
“It is difficult to know, though, if the recent volatility in the financial markets will affect overall consumer spending,” Chief Financial Officer Sharon McCollam said in a statement. “To date, however, we have not seen a measurable impact versus our original expectations.”
Apple Watch
Demand for the Apple Watch also exceeded expectations, Joly said. That led the chain to increase space for the gadget. After initially offering the watch in 100 locations and its website, Best Buy will expand that to 900 stores by September 4. Every one of its 1 047 US locations will get the product by the end of next month.
The broader rollout of the Apple Watch is part of plan to give more space to the tech giant’s products. Best Buy has been revamping its Apple departments - known as stores-in-stores - and expects to have 520 of the 740 that exist upgraded by the holiday-shopping season. The upgrades include new fixtures and additional display tables. This move coincides with Joly’s strategy to strengthen relationships with top vendors. Last year, Best Buy added sections dedicated to televisions from Sony and Samsung Electronics.
Best Buy also is revamping its website, selling more returned items and adding space dedicated to home-theatre setup. And it’s generating more sales from fitness products. Fitbit, for instance, gets 10 percent of its sales from Best Buy, according to data compiled by Bloomberg.
Second-quarter profit topped analysts’ estimates as well, helped by its greater focus on the US. It now generates 92 percent of its sales from America, with the rest coming from Mexico and Canada. That not only reduces the impact of the strong dollar, but it has shielded it from lacklustre growth in Europe and China. Earnings amounted to 49 cents a share in the period, excluding some items. Analysts had projected 34 cents for the quarter, which ended on August 2.
“We recognise there has been turbulence, but we haven’t seen any measurable impact,” Joly said. “We also know that we live in a highly connected world, so we can’t ignore it.”
BLOOMBERG