(Staff and Bloomberg)—Best Buy Co. Inc.’s turnaround journey gets harder from here.
The retailer, which is rolling out new offerings to grab more of its customers’ technology spending, faces a suite of challenges ahead, including the continued encroachment of Amazon.com Inc. and the cost of launching its total tech-support program. The spending boost fueled by the recent tax cuts also is likely to abate in the months ahead, muting consumer demand.
Best Buy is No. 8 in the newly released Internet Retailer 2018 Top 500. Amazon is No. 1.
Best Buy’s online revenue increased 12.0% in the first quarter over Q1 2017. Although its online revenue is still growing, it has slowed compared to 2017’s 22.5% growth over Q1 2016. E-commerce made up $1.24 billion of its Q1 $9.11 billion in revenue—up to 13.6% compared to 12.9% last year.
Same-store sales in the U.S. rose 7.1% last quarter, more than double analysts’ estimates and the biggest first-quarter jump since 2004. Earnings in the quarter also topped projections.
Best Buy CEO Hubert Joly is trying to stave off Amazon and capture additional revenue by pushing its brand deeper into Americans’ homes. This week, the company unveiled a “total tech support” program that covers any gadget you own for $199 a year, and it’s sending hundreds of salespeople out to do in-home consultations, where they’ll recommend everything from routers to refrigerators.
It also has partnered with Amazon to sell TVs powered by the internet giant’s Fire operating system.
The retailer’s expanded service push “is a smart way of both serving and building relationships with consumers,” Neil Saunders, managing director of GlobalData Retail, said, noting that it could open up several new revenue streams for the retailer. But the cost to get it up to speed has “the potential to impact the bottom line.”
Best Buy is not alone in beefing up offerings to take on Amazon. Target Corp. (No. 17) earlier this week reported that its profits were also getting squeezed by new initiatives to drive online sales. Target’s efforts to expand digital demand—including curbside pickup and same-day delivery — have resonated with customers but have taken a toll on the bottom line.
“While the tax benefits will remain for some time, they will likely become less pronounced as the year progresses—especially so now that gas prices are on the rise,” Saunders said. “Best Buy will need to continue evolving and adapting and must find new ways to serve the customer and drive sales.”
Best Buy forecast adjusted earnings per share of between 77 cents and 82 cents in the current period, compared with analysts’ average estimate of 82 cents, and held its full-year guidance steady, disappointing watchers who’d anticipated a boost.