Best Buy (BBY 3.50%) investors have some big questions heading into the chain's earnings announcement in a few days. The retailer is likely to see declining sales this year compared to soaring results in 2021. But will management reaffirm the bright long-term outlook that calls for sales and profitability gains over the next several years?
Let's take a closer look at the announcement set for Tuesday, May 24.
The growth hangover
The immediate worry is that Best Buy will see a huge growth hangover compared to a year ago, back when consumer spending was soaring with help from federal stimulus payments and a booming economy. Those factors weren't present in early 2022, which is the main reason executives were cautious about the short-term outlook. "We expect sales growth ... to look different in FY23," CFO Matt Bilunas said back in early March.
Most investors who follow the stock are bracing for revenue to drop to $10.4 billion from $11.6 billion last year. Pressure will come from reduced e-commerce spending.
Customer traffic at stores also likely dropped compared to last year, when consumers were busy building work and entertainment hubs in their homes. But look for CEO Corrie Barry and her team to describe generally strong demand for tech products compared to the pre-pandemic days.
Another concern heading into the report is the supply chain. Video game hardware was likely hard to secure in early 2022, and Best Buy might have had trouble balancing supply against demand in areas like home theater equipment, appliances, and PCs. Challenges here would pressure Q1 sales but aren't likely to threaten the wider fiscal year if management has its way.
We'll also learn this week whether consumers are as eager to buy new tech products and support services as prices climb. If they are, Best Buy's non-GAAP (adjusted) profitability might hold close to the 6% rate that the company achieved in each of the last two fiscal years. Yet that margin is likely to fall in Q1 before recovering later in the year.
The new outlook
Best Buy said in March that comparable-store sales should fall by as much as 4% this year while margins shrink slightly. That forecast will be updated this week to reflect the latest demand trends.
Management issued a long-term outlook that predicts a return to solid sales growth and robust earnings gains in fiscal 2025. Investors haven't been thrilled with that forecast since it implies about two years of sluggish results ahead.
But Best Buy is focused on strengthening its business and boosting its value proposition for a wide range of consumer tech shoppers. That's the retailer's surest path toward delivering solid shareholder returns over the next several years.