Best Buy's profit fell in Q4! It closed offline stores, increased warehouse space and bet on online business!

Best Buy reported fourth-quarter profit of $14.7 billion.   It fell nearly 10% year-on-year. US consumers are still feeling economic and inflationary pressures , which led to a drop in its US market revenue to $13.5 billion, down nearly 10% year-on-year. Growth in games and tablets offset declines in sales of home theater equipment, home appliances and mobile phones.

The company's fourth-quarter internal gross profit was $2.9 billion for the three months ended Jan. 28. Operating income was $597 million, down nearly 26% from the previous year. Comparable sales fell 9.3%.

In its fiscal 2024 guidance, Best Buy expects revenue of $43.8 billion to $45.2 billion, comparable sales declines of 3% to 6%, and capital expenditures of approximately $850 million.   CEO Corie Barry said on the earnings call that the macroeconomic environment in fiscal 2024 could bring another unfavorable year for the consumer electronics industry, but 2023 will likely be the lowest point in the decline in technology demand.

Best Buy's promotions in the fourth quarter were "more aggressive than last year" and the related financial pressure was lower than expected, which helped achieve stronger gross margin performance. Inventory in the fourth quarter fell 14% year-on-year, which is comparable to fiscal 2020.

CFO Matt Bilunas echoed that sentiment: "We continue to feel good about our overall inventory position and the health of our inventory going into FY '23." Bilunas also noted that fourth quarter FY '24 revenue is on track to increase by $700 million in revenue.

Close 20-30 offline stores

Barry said plans to close 20 to 30 large stores, renovate eight experience stores, and open 10 more outlet stores in fiscal 2024. The changes to Best Buy's physical store format and daily store upgrades and maintenance will amount to $200 million in capital expenditures.

Best Buy has reduced its workforce by about 25,000 employees, or 20% of its total workforce, over the past three years, attributing it to changes in consumer purchasing behavior. Best Buy said it incurred $86 million in restructuring charges in the fourth quarter. They were related to employee termination benefits associated with the company's ongoing restructuring plan that began in the second quarter of fiscal 2023.

Increase warehouse space and develop online business

Best Buy plans to expand some of its warehouse space by reducing selling square footage. "Our stores are now multi-functional, and larger warehouse space can better support other functions, such as our high in-store pickup rate for online orders. In addition, we see significant opportunity to leverage these large store warehouses and our supply chain expertise to help our supplier community achieve more direct-to-consumer channels," Barry said.

Consumers who invested heavily in technology during the peak of the pandemic are approaching the first wave of a pandemic-era device and technology replacement cycle. But they are still feeling financial pressure and are reluctant to make major purchases, Neil Saunders, managing director of GlobalData, said in emailed comments.

"The electronics industry is in some kind of mild recession."

“The market is not helped by a weak new product launch cycle when it comes to devices and gadgets,” Saunders said. “There are certainly new areas of interest, such as virtual reality headsets, but they are a long way from becoming mass [market] products and simply don’t generate the same consumer interest as traditional products like new phones or TVs.”

We learned that although Best Buy still has a little room for improvement in displaying new technologies such as e-health products and virtual reality devices in stores, overall the company has done a good job in customer service and omnichannel services.

Editor ✎Estella/

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