Best Buy boasted its strongest online sales ever as shoppers clicked and bought items such as computers and tablets as they were forced to work, learn and connect remotely from home due to the coronavirus.
Online comparable sales for Best Buy's second fiscal quarter jumped 242% to $4.85 billion, beating the Richfield-based retailer's previous record of $3.52 billion during last year's holiday season.
Even with its stores open only to appointment shopping for nearly half the quarter, its second-quarter comparable sales increased 5%. Overall revenue for May, June and July grew 3.9% to $9.9 billion. Its net earnings increased 81.5% to $432 million.
Despite the positive quarterly news, Best Buy's share price fell 4% Tuesday to $112.64.
Best Buy's continued digital and changing shopping trends have led the retailer to re-evaluate its fulfillment model, including a new test of hub store locations.
"Customer shopping behavior will be permanently changed in a way that is even more digital and puts customers entirely in control to shop how they want," said Corie Barry, Best Buy's chief executive, during a call with analysts. "Our strategy is to embrace that reality and lead not follow."
Best Buy's top retail items were in computing, appliances and tablets.
When most schools shifted to remote learning late last school year, parents likely guided their children to use whichever computing supplies they already had at home, but for the current back-to-school season, parents and students are having to look at more permanent remote learning setups, Barry said.
"Now families are trying to create sustainable work and learning spaces in their homes that could support an extended period of time," she said, on a media call.
As stores reopened, more large appliances and home theater products sold. There also was strong digital demand for some of Best Buy's newer product additions such as camping equipment and at-home fitness machines.
However, low inventory in categories such as gaming consoles was worse than expected and limited the company's sales growth.
"While we expected product constraints as we entered the quarter, the stronger-than-anticipated demand as we opened our stores for shopping resulted in more constrained product availability than we expected," Barry said.
Next month, Best Buy will start a ship-from-store pilot project where about 250 stores will be hubs, shipping out significantly more online orders than normal stores.
Locations were chosen for their space, proximity to carrier partners and ability to support same- and next-day delivery.
The company also is continuing to add more third-party pickup locations for online orders; there already are more than 16,000 locations.
Best Buy is also making changes in how customers can shop, for example adding augmented reality in its phone app and starting another pilot project with a self-service, in-aisle checkout.
Though it was deemed an essential retailer, Best Buy decided to close its stores to foot traffic in late March. In May, stores reopened for scheduled customer appointments and later in mid-June, to regular foot traffic.
Earlier this year, it also furloughed about 51,000 employees, the majority of whom were part-time workers. Best Buy has brought about two-thirds of associates back to work.
Sales have been up about 20% for the first three weeks of the third quarter though company executives are doubtful that those type of numbers will continue throughout the entire quarter. The company did not give guidance, saying the economy is still too uncertain.
"Overall, as we plan for the back half of the year, we continue to weigh many factors including potential future government stimulus actions, the current shift in personal consumption expenditures from areas like travel and dining out, the possible depth and duration of the pandemic, the risk of higher unemployment over time, and the availability of inventory to match customer demand," said Best Buy Chief Financial Officer Matt Bilunas.
During the quarter, the company repaid the $1.25 billion loan it had drawn in March, Bilunas said.
Similarly to what executives at Target said last week as the company released its quarterly report, Barry said she believed the holiday shopping season would start earlier at stores, likely around October.
Moody's analyst Charlie O'Shea called Best Buy's quarter "impressive on all counts," though he noted that high supply-chain costs continue to be a drag on profits.
"While gross profit was down slightly as a result of increased fulfillment and distribution costs due to the online surge and some product mix issues, which included soft mobile sales, operating margin improved dramatically year-over-year, resulting in an operating income increase of over $250 million," O'Shea said, in a statement.