Best Buy Posts Better-Than-Expected Q3 Sales, But Samsung Recalls Cloud Q4 Outlook

Best Buy reined in Q4 projections due to the recalls as “certain products will simply not be available for sale during our fourth quarter as originally expected,” said Barry. Incorporating the $200 million hit, Best Buy’s revenue forecast is $13.4 billion-$13.6 billion, with domestic comp sales projections ranging from -1 to +1 percent and -2 to +2 percent internationally.

Responding to a question on product alternatives to the Note7 for consumers, Barry said the Note7 “can be repaired,” and some customers who are loyal to Android and the size of their phone “might be more willing to go through some of the repair work and wait for whatever else might be coming.” So far, Best Buy isn’t seeing “a ton of people move into other devices,” she said. “It seems like people are pretty loyal to that combination of operating system and size.” CEO Hubert Joly said customers “are not rushing to buy something” else.

Despite the Note7 recall, mobile device sales were up over Q3 2015 but below expectations, said Joly. The retailer increased its AT&T and Verizon store-within-a-store installations to 426 from 247 in the year-ago quarter, and mobile specialists helped steer customers to the best plan for their needs, he said.

Best Buy shares closed 14 percent higher Thursday at $46 on a better-than-expected same-store sales increase of 1.8 percent and the third consecutive month of 24 percent e-commerce growth. Barry credited higher store receipts to the strategy of offering add-on solutions for premium products, such as TVs, that fill out customers' shopping baskets.

Barry called out the poor sound quality of flat-panel TVs as a revenue opportunity. “It’s difficult to get any sound out of a very very beautiful, thin, lightly bezeled panel,” she said. “We don’t want anyone to go home and not love their home theater system and so we’re trying to find ways to make sure that they understand up front, look, you may not feel like you’re getting the full experience when you get home without something to help you on the audio side.”

Joly was enthusiastic about Best Buy’s TV business, citing innovation and large screen sizes as sales drivers. On the upcoming holiday season, Joly said promotional activity will play out “as expected” and that lower prices and “great product” will stimulate demand. Innovations in premium TVs are allowing Best Buy to “appeal to the type of customers that we appeal to,” described as “leading-edge and early adopters.” Referring to rumors, Joly said Best Buy is “not surrendering by any stretch of the imagination,” and is “in the game to win.”

In Q&A, Joly rejected the possibility that the expanding promotional season would create a more subdued Black Friday: The day is “always promotional,” he said. CE is “used by certain players as a way to attract traffic” leading to “aggressive promotions” often in “limited quantities." Best Buy does see some “spreading out” as the promotions have extended beyond Black Friday, Joly said, citing “peaks and valleys being higher and steeper." The consumer has been "trained to shop when prices are more promotional,” he said.

Categories to look out for over the holiday season, Joly said: traditional ones including TVs, computers and headphones, along with the emerging connected home, wearables, drones and virtual reality segments.

Domestic Q3 revenue of $8.2 billion was up 1.3 percent over the year-ago quarter, driven by 1.8 percent comp sales growth partially offset by the closing of 14 large format and 23 Best Buy Mobile stores, Barry said. Industry revenue in NPD-tracked categories declined 3.1 percent over the year-ago quarter, she said, covering TVs, desktop and notebook computers, tablets, digital imaging and other categories. Sales of those products represented roughly 63 percent of domestic revenue but didn’t include mobile phones, appliances, services, gaming, Apple Watch, movies, music or Amazon-branded products.

By category, computing and mobile phones accounted for 49 percent of Q3 domestic revenue, CE accounted for 31 percent, entertainment represented 6 percent and appliances were 9 percent, said the retailer. Comp sales growth in home theater, mobile phones, wearables and connected home were partially offset by declines in gaming, said the company.

Domestic online revenue of $881 million jumped 24 percent year over year on increased traffic, higher average order values and higher conversion rates, said Best Buy. As a percentage of total domestic revenue, online revenue increased to 10.8 percent from 8.8 percent in Q3 2015, it said.

Fiscal 2017 will be a year of “exploration and experimentation” as Best Buy is testing concepts nationally that could be adopted across the company, said Joly. Based on positive results, the retailer expanded its Geek Squad-on-demand pilot, including same-day service, and the in-home adviser program, which includes a free, in-home consultation with a tech adviser who can identify customers’ needs and “become a resource over time,” he said.

Best Buy launched an ongoing support program through its Magnolia Home Theater stores for custom clients, and in Canada it’s testing a Geek Squad home membership service that provides support for all of a customers’ tech products, including products not purchased at Best Buy, Joly said.

Growth categories are connected home, where Best Buy is seeing strength in home security, lighting and video monitoring; drones and VR. In connected home, Best Buy is testing different merchandising concepts including in-store displays with front doors to demonstrate front-door security systems, said Joly. In Q3, more than 700 stores were outfitted with dedicated VR departments that offer demonstrations, VR products, PC gaming devices and accessories, Joly said. Customers have experienced about 300,000 VR demos in Best Buy stores, he said.