First-quarter sales fell as the chain grapples with cautious spending on gadgets, Best Buy reports

NEW YORK (AP) – Best Buy and Kohl’s earnings announced Thursday are the latest evidence of cautious consumer spending in a difficult economic environment.

Best Buy, the nation’s largest consumer electronics chain, reported another quarterly decline in sales as Americans pull back on spending on gadgets to prioritize essential purchases and pay more for things like rent.

The Minneapolis-based company has seen quarterly sales declines for more than two years, dating back to the pandemic as households bought new laptops and other equipment to work from home.

Sales were worse than Wall Street expected, but profits were better than expected. Best Buy provided a muted forecast for this year. But shares rose more than 11% in morning trading as investors appeared to like the way the company was trying to get customers to spend again.

Kohl’s reported a loss in its final quarter and another decline in sales as various efforts to turn around its business still weren’t enough to encourage shoppers to spend. The department store chain also faces growing competition from discount and off-price stores such as TJ Maxx, which offer fashionable clothing at affordable prices. The results fell short of Wall Street’s expectations and Kohl’s forecast was disappointing. The retailer’s shares fell nearly 25%.

The U.S. labor market remains strong, but Americans are paying more for necessities like rent and groceries, even though inflation appears to have started to decline overall. However, Americans are paying more when they use credit cards because interest rates are higher, causing many to postpone larger purchases such as appliances and other goods typically purchased on credit. They also focus more on experiences such as travel and concert tickets.

For Best Buy, it was a reversal during the height of the pandemic, when sales were fueled by overspending by employees who rushed to buy electronics to help them work from home or better equip their children for virtual learning. Government stimulus checks also spurred much of this spending.

Best Buy plans to modernize stores to attract customers and focus on paid membership services that appeal to its customers. The company is also reducing management levels and reinvesting in more staff in its stores to help shoppers.

“Customers continued to be very transaction-focused and attracted to more predictable sales moments,” Best Buy CEO Corie Barry told analysts on a call. She said the overall device category was very promotional in nature, but the company focused on smarter deals.

On Thursday, Barry told reporters on a media call that Best Buy also suffered from a lull in innovation as manufacturers focused on supply chain issues during the height of the pandemic. But he believes that new gadgets, such as a new class of AI-infused personal computers from companies like Microsoft, while expensive, are more efficient and offer longer battery life, which buyers will appreciate. And these new devices will result in lower prices for older computers.

Best Buy reported earnings of $246 million, or $1.13 per share, for the quarter ended May 4. This compares to earnings of $244 million, or $1.11 per share, in the prior-year period. Adjusted earnings per share were $1.20, easily topping Wall Street expectations of $1.08, according to a FactSet survey.

Sales fell to $8.85 billion from $9.46 billion and were lower than the $8.96 billion expected by industry analysts.

Comparable sales – in traditional online and in-store channels – decreased by 6.1%.

Best Buy expects earnings per share this year to be between $5.75 and $6.20, with revenue between $41.3 billion and $42.6 billion. Analysts are forecasting earnings of $6.04 per share on revenue of $41.94 billion.

Kohl’s reported a loss of $27 million, or 24 cents per share, in the quarter ended May 4. That compares with earnings of $14 million, or 13 cents per share, in the same period a year earlier. Analysts expected a profit of 5 cents, according to a survey by FactSet.

The company said sales fell 5.3% to $3.18 billion from $3.36 billion in the same quarter last year. Analysts expected sales of $3.4 billion, according to FactSet.

Comparable sales decreased 4.4%.

Neil Saunders, managing director of research firm GlobaData, said the numbers are worse than they appear. First, he said, the latest results mark the third year in which first-quarter sales declined. Compared to the same period in 2019, sales decreased by as much as 16.8%. On a cash basis, that means Kohl’s lost $643 million in revenue.

Saunders also emphasized that sales were up thanks to a surge in beauty sales, fueled by the partnership with Sephora. Leaving aside this data, sales in Kohl’s major product categories are even more negative than they appear, Saunders wrote.

Kohl’s, based in Menomonee Falls, Wis., forecast that annual earnings per share should be between $1.25 and $1.85 per share. Analysts on average expected $2.40.

It also expects sales to decline from 2% to 4% this year. Comparable sales are expected to decline from 1% to 3%.