Black Friday Sales And Holiday Outlook

Key Takeaways

• Best Buy was able to beat analyst predictions for profit and revenue in a surprising earnings report for the third quarter.
• Despite fears of a looming recession in light of soaring inflation and aggressive rate hikes, there was a record amount of money spent this year on Black Friday.
• Best Buy’s stock went up from the positive news, with the company expressing optimism for the holiday season.

With inflation soaring and fears of a pending recession, many companies have reported lower-than-expected earnings in 2022. All of the macroeconomic concerns from the past year have impacted the stock market; companies that sell products considered to be discretionary items have been particularly affected, as have tech companies. For exactly this reason, we wrote that Best Buy stock was undervalued a few months ago.

Many analysts were predicting a recession for the latter part of the year because there were concerns that the aggressive rate hikes would limit consumer spending and slow down the economy. However, in a surprising plot twist, Black Friday set records for online spending in 2022 despite fears of a recession. We’re going to look at the recent financial results that Best Buy released to see what’s happening with Best Buy stock right now.

Record-setting Black Friday sales

During the summer months, many major retailers were slashing forecasts for the holiday season with predictions of lowered discretionary consumer spending. Then it was announced that a record number of holiday shoppers had gone looking for deals on Black Friday weekend.

The National Retail Federation reported that 196.7 million folks returned to stores and went shopping online, a 9.4% jump from the previous year.

Additional figures from Adobe Analytics showed that online spending reached a record high over the holiday shopping weekend, with $9.12 billion spent on Black Friday and $11.3 billion spent on Cyber Monday. These numbers indicate that consumers are still willing to spend money during the holiday season, especially if they can land deals.

Amazon announced that they had a record weekend as well. While Best Buy hasn’t made a similar declaration yet, this is all positive news that suggests we could see higher-than-expected earnings for retailers during the fourth quarter of 2022. This recent wave of news only adds to the mixed economic news that we’ve seen make headlines this year as inflation has slowly started to cool down while many anticipate further rate hikes from the Fed.

What’s happening with Best Buy stock?

Best Buy saw an increase in revenue of 8% in fiscal year 2021 as they reached $47.3 billion and growth just shy of 10% in the fiscal year 2022, reaching $51.8 billion in total revenue. The company performed well during the pandemic as folks hunkering down sought out new ways to stay entertained – at home. When pandemic restrictions loosened, the company experienced many of the same issues that plagued other major retailers. With supply chain issues, stimulus money drying up, and life returning to normal, people simply spent less on big-ticket electronics.

Best Buy stock closed at $84.37 yesterday, December 5th 2022. The company saw a 12% boost to $79.88 on November 22 when the reported financial results were better than expected. While the increase in Best Buy stock was positive news, its price has tumbled from its high of $136.13 in November of 2021. The company started to warn investors in the early months of 2022 that there would be a slowdown throughout fiscal year 2023.

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Best Buy recently resumed share repurchases in November after pausing this activity in the second quarter. In the third quarter, Best Buy reported they returned $198 million to shareholders through dividends. For the fiscal year, Best Buy has returned $1.06 billion to shareholders through dividends of $595 million and share repurchases of $465 million.

Best Buy also confirmed that the board of directors authorized the payment of regular quarterly cash dividends of $0.88 per common share. The quarterly dividend will be paid out on January 3, 2023, for all shareholders after the close of business on December 13, 2022.

Best Buy Earnings Report

Best Buy recently reported earnings for the period ending on October 29, 2022, or “Q3 FY23.” Here are some of the highlights from the earnings call:

• Earnings per share: $1.38 adjusted vs. $1.03 expected.
• Revenue: $10.59 billion vs. $10.31 billion expected.
• Comparable sales declined 10.4% compared to the expected drop of 11%
• Net income: $277 million, down from $499 million year-over-year.
• Merchandise inventory dropped 14.7% year-over-year to $7.29 billion.

CEO Corie Barry noted in the company earnings call that sales dropped across the entire spectrum of Best Buy’s product categories. The most significant declines occurred in computing and home theatre, likely because people have returned to offices and other normal spending and social habits, like movie theaters and other forms of in-person and live entertainment. Barry also suggested that the inventory decline could be due to timing as about $600 million in receipts came in later than expected.

Best Buy Holiday Outlook

During the most recent earnings call, Best Buy spoke about predictions for the year’s final quarter. While we can’t deny that the company is pretty far removed from the surge in demand during the pandemic, there are positive signs that the situation is not as dire as analysts initially feared.

Before the pandemic, Best Buy was working on turning business around by streamlining its inventory system, improving employee training, growing the e-commerce business, and leasing out floor space to partners. Then during the pandemic, the company benefitted from consumers looking to spend money on big-ticket electronic items to stay entertained during lockdown.

CEO Corie Barry spoke about the importance of sales as consumers struggle with high inflation raising the prices of everyday items. Barry noted that “Across consumers, we can also see that savings are being drawn down and credit usage is going up, and value clearly matters to everyone.” Best Buy also warned that discounts offered to entice customers would impact profit margins for the final quarter.

The company also noted that they were adjusting their prediction of a decline in same-store sales for fiscal year 2023 from 11% to 10%, another positive sign. While this isn’t a drastic improvement, it was enough to encourage investors and analysts alike.

What’s next for Best Buy?

All we can do now is monitor how the holiday spending for 2022 shakes out. Investors will be paying attention to consumer spending this holiday season to see if worries over a recession are enough to curb spending. After the record-setting Black Friday weekend, there is a new sense of optimism.

On the flip side, some analysts still aren’t convinced that Best Buy will turn its business around, even with the recent positive financial results. Steven Zaccone, an analyst from Citi warned clients about Best Buy’s stock, citing concerns over the company’s fundamentals, in particular, executives stating that same-store sales were down 15% through November due to weakening customer transactions.

How should you be investing?

We all know it can be challenging to find the right companies to invest your money in, even during good financial times. With all of the stock market volatility and macroeconomic issues that we’ve experienced in 2022, it can be risky deciding how to invest your money for decent returns.

As an investor, you must do whatever you can to protect your money during times of uncertainty and volatility.

There are ways to become more defensive during times of high inflation. Take a look at Q.ai’s Inflation Kit and protect your investments from dropping in value. Better still, you can activate Portfolio Protection at any time to protect your gains and reduce your losses, no matter what industries you invest in.

Bottom Line

The record amount of shoppers and money spent over the Black Friday weekend could be a sign that it’s not all doom and gloom in the economy. With inflation soaring, consumers have to choose how they spend their money more carefully as fears of a recession grow. Many folks have tightened their purse strings to save up for the worst-case scenario. Others have felt the impact of the rising prices around them and cut back on non-essentials. With the price of groceries and gas going up, people will have less money for electronics and other discretionary purchases. That said, we’ll eagerly await Best Buy’s earnings results for the fourth quarter of 2022.

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