Slowing online sales hurt Best Buy's second quarter, shares drop

(Reuters) - Best Buy Co Inc (BBY.N) on Tuesday reported a drop in quarterly online sales growth and offered a profit forecast for the current quarter that fell short of analyst estimates, sending its shares down more than 7 percent in late morning trading.

Shoppers wait in line outside a Best Buy electronics store in Westbury, New York, U.S., November 24, 2017. REUTERS/Shannon Stapleton

Chief Executive Hubert Joly in a conference call cited a maturing online consumer electronics business for declining web sales growth and said rising transportation costs may pressure current quarter earnings.

The U.S. consumer electronics retailer said in a statement that domestic online sales rose 10.1 percent in its second quarter, ended Aug. 4 That compared with 12 percent in the first quarter and 31.2 percent in the same period a year ago.

Best Buy’s third-quarter profit forecast also disappointed some investors. The retailer said it expects adjusted earnings per share of 79 cents to 84 cents, lower than analyst estimates of 92 cents per share.

Joly said on the conference call that consumer electronics is a more mature category online, in discussing the slow uptick in online sales in the second quarter.

“Consumer (electronics) is one of the first categories that started to move online. So the overall penetration is higher than in other categories,” Joly said.

The company’s investments in making its stores more competitive are bringing more shoppers to its brick-and-mortar locations for products like appliances and large screen televisions, he added.

Joly said higher transportation costs could pressure profits in the third quarter. However, he added investors should find comfort after the retailer raised its annual sales and earnings guidance.

Moody’s lead retail analyst Charlie O’Shea agreed with Joly.

“I think it is important to look at the whole picture with Best Buy and not pieces, more people are shopping at their stores, their overall performance this quarter is strong and that is something the street needs to understand,” O’Shea told Reuters.

“Doesn’t matter whether the sale is being made online or at a physical store ... those lines in retail have started to blur,” he said.

Online sales make up 15 percent of the company’s total domestic sales and represented a 15 percent share of the U.S. consumer electronics market, as of March. The company has doubled its web business in the past five years.

The retailer expects full-year comparable sales to grow 3.5 percent to 4.5 percent versus its original guidance of flat to 2 percent. It also revised its earnings outlook upward to a range of $4.95 to $5.10 from $4.80 to $5.00

The company said it expects a dip in its third quarter operating income, consistent with its expectations from the start of the year.

The company’s online sales and profit forecast for the current quarter overshadowed second quarter sales and profit performance helped by a strong economy.

Excluding charges, Best Buy earned 91 cents per share in its second quarter, ended Aug. 4. Analysts expected 83 cents, according to Thomson Reuters I/B/E/S.

Revenue rose to $9.38 billion, beating estimates of $9.28 billion.

U.S. consumers are spending more, encouraged by rising wages, low unemployment and tax cuts, spurring sales at many retailers, including Best Buy rivals Target Corp (TGT.N) and Walmart Inc (WMT.N), which also sell consumer electronics.

Earlier this month, the Richfield, Minnesota-based retailer said it would buy health services provider GreatCall Inc for $800 million in cash, its largest acquisition ever, hoping to sell health-related products and services to an aging U.S. population.

Before Tuesday, Best Buy shares had risen about 20 percent year to date.

Reporting by Nandita Bose in New York; Editing by Jeffrey Benkoe and Steve Orlofsky

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