Best Buy Crushes Earnings Call, Announces Mobile Store Closures
It was a bit of a mixed bag for Best Buy over the last 12 hours or so. First, overnight, the company announced that it would shutter its 250 small mobile-phone stores across the country. But that was followed up by an early morning announcement that the consumer electronics big box store absolutely crushed it during its fiscal fourth quarter.
So let’s get the bad news out of the way first.
The 250 Best Buy Mobile stores that will no longer exist are mainly mall-based stores that focus (as the name suggests) on mobile devices. Not that we’d attempt to downplay the closing of physical CE retail footprint, but the Best Buy Mobile locations are literally just a blip on the radar for the company from booth a revenue and total square footage perspective. According to Reuters, the stores contributed just over 1 percent to Best Buy’s overall revenue and 1 percent to the overall square footage.
A typical mobile store took up about 1,400 square feet, compared to a full scale Best Buy location that would occupy roughly 40,000 square feet.
In a letter to Best Buy employees, a copy of which was obtained by Reuters, Best Buy CEO Hubert Joly explained that the mobile store business was launched more than a decade ago—prior to the launch of the iPhone—when margins in the mobile phone business were high. “Fast forward to 2018 and the mobile phone business has matured, margins have compressed and the cost of operations in our mobile standalone stores is higher than in our big box stores,” he wrote.
The company will continue to sell smart phones in its main retail locations, and the decision does not impact the 52 mobile stores in Canada.
On to the good news.
The turnaround that has been led by Joly over the past few years really started to show its head during Best Buy’s most recent fiscal quarter, which closed at the start of February. In a statement, Best Buy reported “better-than-expected” results during the quarter, but that’s even a bit of an understatement.
Comparable sales during the 14-week quarter, which covered the holiday shopping season, rose 9 percent to $15.363 billion, up from $13.482 billion a year ago. Heading into the quarter, Best Buy’s guidance for comparable sales was a 3 percent increase. So, effectively, the company tripled its anticipated result. Further, as it closed the books on its FY18, Best Buy was able to report 5.6 percent growth in comparable sales for the year—up to $42.151 billion from $39.403 billion last year.
“We are excited to report strong results for the fourth quarter and the year,” Joly said in a statement. “We are especially proud of our 9.0 percent comparable sales growth in the quarter, which brings our annual comparable sales growth to 5.6% for the year. Customers are responding very positively to our Best Buy 2020 strategy, and I want to enthusiastically thank all our associates for their great work in delivering these results. The level of energy and dedication to serving customers that I see across the company is truly inspiring.”
The smashing performance was the result of impressive comparable sales increases in all product and service segments across the board. In particular, appliances led the charge with a 20.7 percent comparable sales increase domestically (compared to just 6.4 percent last year), and 49 percent comparable sales increase internationally (up from 38 percent). Computing and mobile phones sales also grew here in the U.S., checking in at 9.6 percent (up from 4.4 percent last year).
Looking ahead to FY19, Best Buy is expecting comparable sales to come in between flat and 2 percent growth on top of the 5.8 percent growth delivered in FY18.