May 21, 2020 / 11:24 AM / 14 days ago

Best Buy sees margin pressure as online demand raises delivery spend

(Reuters) - Best Buy Co Inc (BBY.N) said on Thursday it expects profit margins to be under pressure in the second quarter, as it spends more on expanding delivery services to support a surge in online shopping from people staying at home due to the COVID-19 pandemic.

FILE PHOTO: People wait for purchases outside of a Best Buy store due to the outbreak of coronavirus disease (COVID-19) in Arlington, Virginia, U.S. April 10, 2020. REUTERS/Joshua Roberts/File Photo GLOBAL BUSINESS WEEK AHEAD

The company’s shares, which have gained nearly 60% in the last two months, fell 3.5%.

The electronics retailer was forced to shutter stores across the United States for weeks to help contain the spread of the coronavirus, but its outlets continued to provide curbside delivery for online sales, which surged over 155% on a comparable basis.

Best Buy said it was also ramping up its same-day delivery services, as people stuck at home under lockdown restrictions shop more for monitors, printers and other work-from-home equipment, as well as gaming consoles.

Online sales made up about 42% of Best Buy’s first-quarter domestic revenue of $7.92 billion, compared with just a 15% share a year earlier.

“We expect that our online sales will continue to be high as a percentage of overall sales in the second quarter, which will continue to pressure the gross profit rate,” Chief Financial Officer Matthew Bilunas said on a call with analysts.

Best Buy’s overall revenue fell 6.3% to $8.56 billion in the quarter ended May 2, but beat analysts’ expectations of $8.16 billion, according to IBES data from Refinitiv. Quarterly same-store sales fell 5.3%.

The company, which furloughed 51,000 hourly U.S. store employees last month, said net earnings fell 40% to $159 million.

Excluding one-time items, the company earned 67 cents per share, more than analysts’ average estimate of 44 cents per share.

The company maintained its quarterly cash dividend of 55 cents per share and said about 700 of its stores were open for customers on an appointment basis.

(This story corrects typo in paragraph 4)

Reporting by Uday Sampath in Bengaluru; Editing by Vinay Dwivedi

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