Best Buy (BBY.N) on Wednesday forecast a bigger drop in annual sales than previously estimated, in another sign that consumers are feeling the pressure of decades-high inflation and curbing spending on discretionary items such as computers and TVs.
Shares in the electronics retailer dropped 4% in extended trading, after Best Buy also forecast a 13% slump in current-quarter comparable sales and paused its share buyback programs.
The warning comes close on the heels of a similar announcement from retail bellwether Walmart Inc (WMT.N), which on Monday slashed its profit forecast, saying soaring gas and food prices dented demand for discretionary items.
“As high inflation has continued and consumer sentiment has deteriorated, customer demand within the consumer electronics industry has softened even further,” Best Buy Chief Executive Officer Corie Barry said.
Sales of electronic items have been declining since April last year, with buying rates now down more than 20%, RBC Capital Markets said, citing data from Numerator Insights.
Weakening demand for personal electronics was also flagged by chipmakers Qualcomm Inc (QCOM.O) and Texas Instruments Inc (TXN.O) in their latest earnings reports.
“Today’s update (from Best Buy) suggests that things have worsened far faster and further than anticipated … This is clearly going to be a very lean year for one of the darlings of the sector,” GlobalData Managing Director Neil Saunders said.
Retailers such as Walmart, Target Corp (TGT.N) and Best Buy have to mark down prices on consumer electronics if they want those inventories to move, said Jason Benowitz, senior portfolio manager at Roosevelt Investment Group.
Their fiercest competition is with essentials such as food and fuel and not with each other, he added.
The company said it was expecting full-year comparable sales to be in the range of around 11%, compared with its previous forecast of a 3-6% decline.
It also forecast an adjusted operating income rate of about 4%, down from the 5.2-5.4% it estimated previously.