Best Buy is the latest big-name retailer to grossly overstate consumer demand as recession fears mount and shoppers pull back from discretionary shopping.
The electronics retailer slashed both its second-quarter and full-year financial forecasts late Wednesday, sending shares down 4% in after-hours trading.
Best Buy’s downgrades are hard on the eye to say the least:
2Q Same Store Sales: -13% (before: approx. -8%)
2Q Operating Margin: 3.7% (vs. 6.9% in the second quarter of last year)
Same store sales for the whole year: -11% (before: -3.6% to -6%)
Operating margin for the full year: 4% (previously: 5.2% to 5.4%)
Additionally, Best Buy announced it would end the second quarter with inventory levels flat year-over-year despite a sharp drop in same-store sales. Such an imbalanced inventory-to-sales ratio suggests that Best Buy could come under severe pressure on margin well into the year as it reduces slow-moving inventories.
Certainly, Best Buy isn’t the only retailer under severe pressure from the slowdown in the economy.
The world’s largest retailer, Walmart, also cut its second-quarter and full-year earnings outlook late Monday due to runaway inflation and consumer reluctance to buy essentials like clothing. Walmart now expects full-year earnings to fall 11% to 13%, down from a previous estimate of a 1% decline.
In its own advance notice, grill maker Weber said it fell well short of earnings expectations for the second quarter this week.
Bath & Body Works also warned last week that earnings would come in below consensus estimates as consumers rein in spending.
Walmart’s main competitor Target sparked concerns about the health of the retail sector in June with a shocking decision to liquidate large amounts of inventory and take a more cautious view of near-term profits.
Other retailers such as RH, Bed Bath & Beyond and Kohl’s have issued more cautious forecasts as consumers shift spending away from discretionary categories.
The story goes on
“There’s this shift from discretionary and general commodities to commodities,” Jefferies analyst Stephanie Wissink said on Yahoo Finance Live. “The budget has to make discriminatory decisions about how to fund this inflation every week.”
Brian Sozzi is a freelance writer and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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