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Product Recalls, Shortages Hurt Best Buy During The Holiday Period

Product Recalls, Shortages Hurt Best Buy During The Holiday Period

The electronics retailer will initiate its next growth strategy phase this year, which aims to improve its multi-channel business and presence in Canada and Mexico.

Similar to its local rival Target, Best Buy said Wednesday that it would implement a new retail strategy after reporting a drop in sales during the crucial holiday period.
 
Revenue during the Richfield-based electronics retailer’s fourth quarter totaled $13.48 billion, a $141 million drop from last year. Its earnings, however, jumped nearly 27 percent from $479 million a year ago to $607 million.
 
Best Buy CEO Hubert Joly said he was “proud” of the company’s performance during the November to January period, but felt elements out of Best Buy’s control held it back from improving its sales over last year.  
 
“Our revenue was hindered by unprecedented product availability constraints across multiple vendors and categories, only some of which were anticipated,” Joly said.
 
The Amazon Echo, Apple tablets and smartwatches, as well as the Nintendo NES Classic, were among the hot gift items that retailers industry-wide struggled to keep on the shelves. In all, Best Buy estimated the shortages amounted to $100 million to $200 million in lost revenue.
 
Additionally, the company said it took a hit from the Samsung Galaxy Note 7, which was recalled last fall after multiple reports of the smartphone catching fire or exploding. Best Buy previously said it expected to lose about $200 million from the Note 7 recall.
 
However, product shortages are not an over-and-done issue, Best Buy CFO Corie Barry said. Problems with product availability are expected to persist throughout the first half of 2017, which she said, among other reasons, led the company to forecast flat sales and profit for its fiscal 2018 year.
 
Investors ultimately felt underwhelmed by the outlook as shares fell nearly 5 percent on Wednesday, closing at $42.13.
 
The end of its fiscal year, Joly said, also marked the end of an era at Best Buy.
 
“Since the introduction of Renew Blue in November 2012, we have improved the operating performance of the business dramatically,” he remarked on the company’s business strategy. “We now feel it is time to call Renew Blue officially over and launch our strategy for the next phase of our journey: Best Buy 2020: Building the New Blue.”
 
The chief executive listed three areas of focus the new strategy would take, which he called the “three pillars” of the plan. Maximizing the company’s multi-channel retail business — meaning at the store level, online, through in-home consultations and elsewhere — topped off the list. Joly said the company also would aim to provide new and improved services and solutions for customers, which he called the second pillar. Lastly, Best Buy intends to accelerate its growth in Canada and Mexico, the chief executive said.
 
For the first quarter, Best Buy is expecting adjusted earnings per share from 35 cents to 40 cents. Wall Street’s prediction was 49 cents per share. Meanwhile, Best Buy believes sales at its stores open a year or more will fall 1.5 to 2.5 percent compared to its year-ago quarter.