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A game of Wall Street expectations management 101 by Best Buy

Shares of the consumer electronics retailer rose 2% in pre-market trading as second-quarter earnings handily beat consensus estimates.

Considering Best Buy’s cautious tone on the business back in its May earnings release, and the negative reads on big-ticket consumer spending since, the analyst community wasn’t expecting much from the company’s results.

Hence, sales and earnings beats.

But dig beneath the surface, and you will see a retailer still struggling with the new consumer environment of higher interest rates and pesky inflation. People opting to spend on services such as vacations are also not helping the cause of a discretionary goods retailers like Best Buy.

The company said Tuesday it saw sizeable sales declines in key departments such as mobile phones, consumer electronics and appliances. While it called out an improvement in the low end of its full-year EPS guidance versus that several months back, it still trimmed the top end ÔÇö a nod to possible holiday spending softness.

Moreover, its third-quarter sales guidance suggests the back-to-school electronics shopping season has started on a slow note.

“Our financial results were better than expected, and they reflect a consumer electronics industry that remains challenged due to the pull-forward of demand in prior years and the various macroeconomic factors that we are all too familiar with,ÔÇØ Best Buy CEO Corie Barry said in a statement.

ÔÇ£With that said, we continue to expect that this year will be the low point in tech demand after two years of sales declines. Next year, the consumer electronics industry should see stabilization and possibly growth driven by the natural upgrade and replacement cycles and the normalization of tech innovation.ÔÇØ

The earnings rundown

• Net Sales: -7.2% year over year to $9.58 billion vs. estimates for $9.53 billion

  • Same-Store Sales: -6.2% vs. estimates for 6.4%

  • Domestic Same-Store Sales: -7.1%

  • International Same-Store Sales: -5.4%

• Gross Profit Margin: 27% vs. 21.5% a year ago and estimates for 22.61%

• Diluted EPS: -21%% year over year to $1.22 vs. estimates for $1.07

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What else caught our attention

• 2Q domestic segment gross profit margins rose to 23.1% from 22% last year.

• 2Q international segment operating profit margins fell to 2.7% from 3.7% a year ago.

• 2Q overall operating margins were unchanged year on year at 3.6%.

• 2Q inventory fell 6.5% from a year ago, slower than the pace of sales.

• 2Q same-store sales declines in the domestic segment: computing and mobile phones -6.4%; consumer electronics -5.7%; appliances -16%.

• 2Q same-store sales increases in the domestic segment: entertainment up 9%; services up 7.6%; other up 2.4%.

• 2Q same-store sales fell in all segments for the international segment, except for a 2.5% increase in entertainment and a 4.6% gain in services.

• 3Q same-store sales seen as “slightly better” than the 6.2% drop in the second quarter.

• 2023 EPS guidance: $6.00 to $6.40 vs. estimates for $6.06 (prior: $5.70 to $6.50)

What competitors said: 2Q general merchandise sales

• Walmart US same-store sales of general merchandise fell by a low-single digit percentage due to weakness in home goods and apparel.

• Sam’s Club US same-store sales of tech merchandise declined by a low-double digit percentage due to softness in consumer electronics.

• “After years of stimulus-fueled purchasing, the discretionary dollar is harder for our members to part with, and buying habits are returning toward normal. This has affected sizable general merchandise categories, such as consumer electronics, along with more seasonal categories like patio and outdoor furniture.” -BJ’s Wholesale CEO Bob Eddy

Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email [email protected].

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Note: The above content was written using AI technology.

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