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Best Buy joins retailers warning that shoppers are struggling to pay credit card bills

Best Buy (BBY) is joining its fellow retailers in sending a smoke flare up on the ability of its shoppers to pay their credit card bills.

"We are seeing a more normalized rate compared to 2020," Best Buy CFO Matt Bilunas told analysts on a conference call Tuesday regarding net credit losses.

Bilunas expressed concern on this trend worsening into 2024, as consumers battle the one-two punch of pesky inflation and higher interest rates.

The electronics retailer isn't alone in dropping a credit card warning.

Macy's (M) said last week that its second quarter credit card sales tanked 36% from the prior year to $150 million. The culprit: Bloated balances on Macy's Citibank-powered credit card have been met with a rising interest-rate environment.

In turn, cash-strapped consumers — enduring an almost 32% annual percentage interest rate on the Macy's card — haven't been able to pay off their bills. Macy's has opted to write off those balances.

"While we have seen an increase in revenues as interest rates have risen, that has been more than offset by higher bad debt assumptions and write-offs," Macy's CFO Adrian Mitchell said on a call with Wall Street analysts.

"These bad debt assumptions and write-offs are the result of rising delinquencies, which leads to higher net credit losses over time and contributes to increased bad debt within the portfolio."

Macy's execs added that the retailer is seeing the most acute pressure among households earning $75,000 and under.

High-end department store Nordstrom (JWN) also saw credit card challenges in the second quarter, per its earnings release a week ago.

Read more: How to consolidate credit card debt with a personal loan

The impact of higher interest rates were evident throughout Best Buy's second quarter.

Best Buy notched sizable sales declines in key departments that often get funded on credit, such as mobile phones, consumer electronics, and appliances.

The company also forecast a potential same-store sales decline in the all-important holiday quarter.

The earnings rundown

  • Net sales: -7.2% year over year to $9.58 billion vs. estimates for $9.53 billion

    • Same-store sales: -6.2% vs. estimates for 6.4%

    • Domestic same-store sales: -7.1%

    • International same-store sales: -5.4%

  • Gross profit margin: 27% vs. 21.5% a year ago and estimates for 22.61%

  • Diluted EPS: -21% year over year to $1.22 vs. estimates for $1.07

What else caught our attention

  • 2Q domestic segment gross profit margins rose to 23.1% from 22% last year.

  • 2Q international segment operating profit margins fell to 2.7% from 3.7% a year ago.

  • 2Q overall operating margins were unchanged year on year at 3.6%.

  • 2Q inventory fell 6.5% from a year ago, slower than the pace of sales.

  • 2Q same-store sales declines in the domestic segment: computing and mobile phones -6.4%; consumer electronics -5.7%; appliances -16%.

  • 2Q same-store sales increases in the domestic segment: entertainment up 9%; services up 7.6%; other up 2.4%.

  • 2Q same-store sales fell in all segments for the international segment, except for a 2.5% increase in entertainment and a 4.6% gain in services.

  • 3Q same-store sales seen as "slightly better" than the 6.2% drop in the second quarter.

  • 2023 EPS guidance: $6.00 to $6.40 vs. estimates for $6.06 (prior: $5.70 to $6.50)

Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.

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