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Technology Best Buy sees strong tech demand into Q1 2021, but uncertainty after that

06:38  26 february  2021
06:38  26 february  2021 Source:   zdnet.com

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Best Buy wrapped up a strong fourth quarter and 2020 due to COVID-19 pandemic technology upgrades, but the company said there's "a high level of uncertainty" about whether strong demand will persist.

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The consumer electronics retailer benefited from remote work and education trends as well as the need for upgrades for Wi-Fi routers, PCs, and home office equipment. What's unclear to the COVID-19 pandemic tech-related winners is how demand unfolds as a new normal emerges. Home Depot, Shopify, and a bevy of others have noted that it's unclear whether 2020's demand trends will continue into 2021.

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Best Buy reported fourth quarter earnings of $3.10 a share on revenue of $16.94 billion. Non-GAAP earnings were $3.48 a share.

Wall Street was looking for fourth quarter revenue of $17.23 billion with non-GAAP earnings of $3.45 a share.

Propelled by sales of mobile devices and appliances, Best Buy's same store sales in the US were up 12.4%. Online sales were up nearly 90% to $6.7 billion in the fourth quarter and now are 43% of sales.

For fiscal 2021, Best Buy reported earnings of $6.84 a share on revenue of $47.26 billion.

CEO Corie Barry said that fiscal 2021 accelerated Best Buy's transformation and the company will accelerate investments to evolve to a "digital-first mindset." Investments will include "areas such as our technology, automation, and analytic capabilities, our health initiatives, and continuing to pilot and test new operating formats with our store assets using a more flexible and cross-trained employee base."

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The outlook for Best Buy is colored by the following moving parts:

  • Demand for technology is elevated at the start of the fiscal year and the company is projecting same-store sales growth of 20%.
  • There is a high level of uncertainty due to COVID-19, vaccination timing, and how customer demand and shopping patterns emerge.
  • Best Buy sees same-store sales growth ranging from down 2% to up 1%.
  • The company said it expects consumers to shift to travel and dining out in the back half of 2021.

On a conference call, Barry cited numerous moving parts in the quarter:

After reaching 33% comp growth in October, our growth rate moderated as we lapped last year's November and December holiday sales before accelerating again in January due to the ongoing elevated stay-at-home demand boosted by government stimulus actions. That sales growth momentum we saw in January has largely continued into February. As a result of both the successful early holiday sales and the product availability issues the industry has been seeing all year, we continue to experience product availability constraints during the fourth quarter, which we believe moderated our holiday sales, particularly in large appliances, computing and televisions. In addition, demand for the new gaming consoles far outstrip supply across the industry as was well documented. Our teams work closely and effectively with our vendors to bring in as much inventory as possible, and inventory positions improved through the quarter.

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Retooling stores

Last quarter, Barry highlighted store pilots in the Best Buy network. This quarter, she noted that Best Buy is looking at stores as fulfillment centers and looking to consolidate the footprint. However, Best Buy is taking a measured approach because it needs data on how consumer habits are shifting.

She said:

We must balance urgency for change with the need to learn and understand how customer shopping behavior is changing. We are already gathering learnings and iterating on our initiative. An example is our ship-from-store hub pilot that we've talked about for the past few quarters. During Q4, we used 340 stores or roughly 35% of our store locations to handle about 70% of our total ship-from-store units. We believe that we can achieve similar results, consolidating volume using a smaller group of stores as hubs over time.

In addition, in a subset of these stores, we plan to reduce the sales floor square footage and install warehouse-grade packaging, station equipment and supplies. As a result, we expect to drive both efficiency and effectiveness. We also continue to pilot reduced selling square footage and alternative layouts in a number of stores in the Minneapolis market.

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Over time, Barry said there will be higher thresholds on renewing leases. Best Buy has about 150 leases a year coming up for renewal over the next three years.

Meanwhile, Best Buy's headcount is falling amid the shifting consumer habits. Best Buy is also investing more in IT.

CFO Matthew Bilunas said:

Technology has, and increasingly will be, the foundation of how we will operate and how we accelerate our strategy. This includes continued technology investments and capabilities to support our health initiatives, increasing and improving our digital interactions with customers, simplifying task in our stores and building upon our analytics to support decisions we make on a daily basis. We are also modernizing our systems and tools as well as utilizing more cloud-based solutions. For example, we are partnering with Microsoft to leverage its cloud to help power our health care offerings. In addition, we are transforming the structure of our technology teams by bringing more headcount in-house versus using contract workers.

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