Investors had high expectations heading into Best Buy's (BBY -0.11%) fiscal 2022 second-quarter earnings report. They weren't disappointed.
The retailer on Tuesday morning revealed that demand was strong through July as consumers spent freely on products that helped them be more productive and entertained at home. Customer traffic gains convinced management to issue a second straight dramatic upgrade to their annual outlook, despite mounting risks to the business related to inflation and the coronavirus.
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Sales beat expectations
For the quarter that ended July 31, Best Buy beat the forecast that management issued three months ago. Instead of sales rising 17% overall, they grew by 20%.
Admittedly, much of that gain came because this period is being measured against an unusually weak year-ago period when many of the chain's stores were operating at limited capacity. But Best Buy is still catering to far more customers today than it was two years ago. Revenue is up 24% compared to the second quarter of its fiscal 2020 (which was in calendar 2019).
"Customer demand for technology products and services during the quarter remained very strong," CEO Corie Barry said in a press release. Management credited the chain's popular multichannel sales platform, plus a generally strong economic environment supported by rising incomes, financial stimulus, and cash savings.
Higher prices
Margins continued climbing as the chain passed along higher prices to consumers even as demand tilted further toward more premium home theater and computing products. The company's relatively young appliance business was a big contributor, too.
Overall, operating income hit $797 million, or 6.7% of sales, compared to $568 million, or 5.7% of sales, a year earlier. Margins were up to 7% of sales through the first half of the year -- double the rate that the company was achieving back in 2019 before the pandemic struck.
BBY Operating Margin (TTM) data by YCharts
"We now serve a much larger installed base of consumer electronics," Barry explained, "with customers who have an elevated appetite to upgrade." The chain's convenient fulfillment options, plus comprehensive tech support, make it particularly appealing to today's shoppers, even in a crowded tech retailing industry.
Looking out to 2022
In connection with the report, Best Buy management issued a second straight major upgrade to its outlook. Sales are now expected to grow by between 9% to 11% for the fiscal year instead of the 3% to 6% range management issued three months ago. Heading into the fiscal year, that forecast was for flat revenue compared to last year's 10% spike. Now, Best Buy has a good shot at a second consecutive fiscal year of double-digit percentage comps gains.
The supply chain is still facing pressure due to higher expenses, especially in labor and the supply chain. However, those headwinds are being fully offset by the strong demand trends in niches like appliances.
Investors will have a much better read on how the full year will play out following the company's fiscal third-quarter earnings report, which will include a detailed outlook for the holiday shopping season.
But in the meantime, it's looking like another banner year for the retailer, with earnings soaring thanks to robust demand and improving profit margins.
