With Strong Sales, Best Buy Tweaks Apple Strategy

Best Buy gave observers a big surprise—and we mean the good kind—with sales and profits higher than forecast. The retailer credits its performance to healthy sales of Apple products as well as evidence that its emphasis on providing advice, service and convenience is resonating with customers. 

Overall, revenues for its fiscal second quarter rose 0.8% to $8.52 billion, compared with $8.46 billion. But domestic revenues climbed 3.9% to $7.88 billion, and a comparable-store basis, sales advanced 2.7%, excluding the benefit of installment billing. Online sales jumped 17%. 

The gains were “driven by continued strong performance in major appliances, large screen televisions and mobile phones,” says chairman and CEO Hubert Joly, in a press release announcing the results.

“We also saw industry revenue in the NPD-tracked categories, representing 65% of our revenue, improve from a decline of 5.3% in the first quarter to a decline of 1.3% in the second quarter.” Sales of products linked to health and fitness also improved, while tablet sales dipped. 

In a conference call following the announcement, Joly says results got a boost from Apple products, especially the new Apple Watch, which has only been on sale a few weeks. He also says the Minneapolis-based retailer is updating its Apple store-within-the-store shops, intends to begin selling AppleCare plans, and a test as an authorized service provider.

The results impressed some observers, including Charlie O'Shea. VP of Moody’s, which just upgraded its credit rating. "Best Buy continues its successful transformation into a true multi-channel retailer, and we believe the company will continue to benefit from its deep vendor relationships with world-class partners such as Samsung, Sony, Microsoft, Apple, and Amazon,” he writes. “Of note, Apple recently-selected Best Buy as the only non-Apple retailer to sell the Apple Watch, which we believe is a reflection of Best Buy's retail strength."

And Michael Baker, an analyst who follows Best Buy for Deutsche Bank, characterized the results as “a big beat. Appliances were up 21%, an acceleration from up 12% last quarter and once again the best performing category,” he writes in his note following the announcement. “The consumer electronics category was up 7.3%, similar to last quarter’s 7.6% increase, driven by higher-end televisions.”

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