Best Buy expects to see some product shortages and delays in the coming months due the coronavirus outbreak in China where most of its vendors are still not up and running at full capacity, executives of the Richfield-based retailer said this morning.
CEO Corie Barry said it’s still a very fluid situation and hard to quantify the full size of the impact of the deadly illness. Still, executives factored it into the retailer’s guidance for the year with an expectation for depressed sales in the first half of the year that they don’t expect to fully make up later in the year.
As a result, Best Buy issued a muted, but still positive, forecast for the coming year calling for flat to 2% growth in comparable sales.
“We are seeing some areas where we’re starting to see less stock available,” Barry told reporters this morning after the company reported stronger-than-expected sales and profits during the holidays.
She said “very few” of its vendors who have production in China are back at full capacity as many workers stay at home to avoid contracting the potentially deadly virus.
“Some vendors are telling us they’re struggling to staff,” she said. “Or they are purposefully staffing light so they can rotate employees in. In some cases, we’re hearing from vendors that while they don’t have finished goods in Asia, they’re waiting for component parts and pieces.”
At the same time, as the largest consumer electronics retailer in the U.S., a country that is the largest consumer of such products worldwide, Best Buy has more leverage with its vendors as they look to divert safety stocks or surplus inventory in other parts of the world to the U.S., she said.
Seth Sigman, an analyst with Credit Suisse, said the coronavirus does add uncertainty to the picture for Best Buy.
But, he wrote in a research note to clients, “We do view this as largely a blip” in the first half of the year, with other growth drivers in the latter part of the year.
Executives added that they expect the disruption to the supply chain to be a short-term issue that won’t impact their long-term strategy and initiatives.
Best Buy’s shares, which are down about 2% since the market opened this morning, tumbled 9% earlier this week as concerns over the coronavirus as it spread to more countries over the weekend rattled markets and took a toll on many stocks.
Analysts were expecting Best Buy to be conservative with its guidance given the coronavirus outbreak, which has shut down or delayed production in many parts of China, the largest source of consumer electronics products.
At the same time, the 2020 outlook for sales of consumer electronics in the U.S. is fairly healthy with the NPD Group forecasting 5% growth in the category this year before coronavirus became a major issue.
Matt Bilunas, Best Buy’s chief finance officer, told analysts on a conference call this morning that executives still see a very positive consumer spending environment, similar to last year, with low unemployment and some wage growth. And the company expects to see growth from its Total Tech Support services program as for categories such as appliances and headphones to be strong. Adoption of new technologies such as 5G and 8K TVs could provide other opportunities for higher growth.
But he noted that Best Buy expects gaming to be down the first three quarters of the year as new gaming consoles are not expected to be launched until before the holidays.
While some high-performing retailers such as Walmart and Target stumbled during the most recent holidays with lower-than-expected sales, Best Buy reported on Thursday strong sales during its fourth quarter. Demand for headphones, computers, appliances and mobile phones helped drive 3.4% growth in comparable sales in the U.S.
“We found Best Buy’s performance all the more noteworthy given the compressed holiday selling season, which tripped up several large U.S. retailers,” Anthony Chukumba, an analyst with Loop Capital Market, wrote in a note to clients this morning which called the retailer’s results “impressive.”
“We were also encouraged by management’s (fiscal year) guidance given Asian supply chain disruption fears,” Chukumba wrote.
In the quarter, Best Buy’s profit rose 1.4% to $745 million. When adjusted for various items, it earned $2.90 a share, which was better than the $2.75 analysts had been expecting.
Its total revenue increased 2.7% to $15.2 billion.
During the holidays, Best Buy rolled out free next-day delivery on thousands of items as well as dozens of new pickup locations for online orders inside CVS and UPS stores across New York City. It has also begun adding curbside pickup options to some of its stores around the country,
Earlier this month, Best Buy’s board also reaffirmed its support of Barry following an investigation into her personal conduct.
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Best Buy expects short-term product shortages, delays from coronavirus - Minneapolis Star Tribune
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