Best Buy to cut costs and close stores
MINNEAPOLIS — In order to grow, Best Buy is shrinking.
The largest U.S. specialty electronics retailer for years expanded quickly by opening big-box stores across the country. But shoppers have started using the hulking stores as showrooms where they can test out products before buying them cheaper elsewhere.
To revamp the struggling chain, Best Buy said Thursday it plans to close 50 of its U.S. big box stores, cut 400 corporate jobs and trim $800 million in costs. The company, which has about 1,400 U.S. locations, also plans to open 100 smaller and more profitable Best Buy Mobile stores throughout the country.
“How do we position the company so we’re where our customers need us to be?” asked CEO Brian Dunn in a call on Thursday with analysts. “We’re clearly going to have more doors and less square footage.”
Best Buy is trying to avoid the fate of its rival Circuit City, which liquidated in 2009 after it struggled with the changing electronics landscape. Sales of TVs, digital cameras and videogame consoles — once the bread-and-butter of electronics retailers — have weakened, while sales of lower-margin items like tablet computers, smartphones and e-readers have increased. The rise in competition from Internet rivals like Amazon.com and discounters like Target also has hurt electronics retailers.
To better compete, Best Buy is shaking up its business. In addition to closing some of its big box stores, the company said it will focus on what sets it apart from its rivals: Trained sales staff that can help shoppers get the most out of their tablets, TVs and other electronic devices, including tech support from its “Geek Squad” service and repair unit.
But even as the Best Buy announced its changes on Thursday, the Minneapolis-based company also posted a $1.7 billion fiscal fourth quarter loss that’s partly due to restructuring charges. Despite the loss, Best Buy’s adjusted results for the quarter topped Wall Street’s expectations. But as investors worried that Best Buy’s restructuring didn’t go far enough, its shares slid about 7 percent to $24.66.
Best Buy’s loss amounted to $4.89 per share for the period ended March 3, compared with a profit of $651 million, or $1.62 per share, a year ago. Results included $2.6 billion in charges mostly related to its purchase of Carphone Warehouse Group PLC’s interest in the Best Buy Mobile profit-sharing agreement and related costs, as well as an impairment charge tied to writing off Best Buy Europe goodwill and restructuring charges.
Taking these items out, adjusted earnings were $2.47 per share, above the $2.15 per share that analysts surveyed by FactSet forecast. Revenue rose 3 percent to $16.08 billion, but missed Wall Street’s $17.18 billion estimate.
Revenue at stores open at least a year — an indicator of a retailer’s health — slipped 2.4 percent. But it was a smaller drop than a year earlier when the company reported a 4.7 percent decline.
For the full year, Best Buy lost $1.23 billion, or $3.36 per share, compared with a profit of $1.28 billion, or $3.08 per share, in the prior year. Adjusted earnings were $3.64 per share, which tops the previous year’s $3.43 per share.
Annual revenue rose 2 percent to $50.71 billion. Revenue at stores open at least a year fell 1.7 percent. In the prior-year period, the figure dropped 1.8 percent.
Looking forward, Best Buy forecasts fiscal 2013 earnings of $2.85 to $3.25 per share and adjusted earnings of $3.50 to $3.80 per share. Analysts expect earnings of $3.67 per share.
It expects fiscal 2013 revenue of $50 billion to $51 billion. That estimate falls slightly short of analyst predictions of $51.6 billion. Meanwhile, Best Buy expects revenue at stores open at least one year to fall 2 percent to 4 percent.
“The firm is taking incremental steps to address its strategic challenges,” wrote Goldman Sachs analyst Matthew Fassler. “That said, the soft close to the quarter, and subdued sales guidance, suggest that competitive pressure may be drifting into market share as well as margin.”