Best Buy Swings to Loss on Restructuring Costs
Shortly after striking a deal to sell its 50 percent stake in Best Buy Europe and amid a turnaround plan involving a number of cost-cutting initiatives, Best Buy Company, Inc., swung to a loss during its fiscal first quarter—news that prompted its stock price to drop.
The Richfield-based electronics retailer’s net loss for the three-month period that ended May 4 totaled $81 million, or $0.24 per share; that’s compared to net income totaling $158 million, or $0.46 per share, for the same period last year.
Excluding some one-time items, Best Buy earned $0.32 per share, better than the 25 cents per share that analysts had expected.
Best Buy Europe is now reported as discontinued operations. Net earnings from continuing operations fell to $97 million, or $0.29 per share, from $169 million, or $0.49 per share, a year earlier.
Revenue, meanwhile, totaled $9.4 billion, down 9.6 percent from the first quarter of last year. That figure wasn’t comparable to analysts’ estimate because it included Best Buy Europe but the company’s figure excluded it. Sales at stores open for at least 14 months fell 1.3 percent.
Best Buy attributed the first-quarter declines to several factors, including its investment in price competitiveness. It also cited a shift in the timing of Super Bowl-related sales: This year’s event took place February 3, when the company’s first quarter began, so pre-game sales of big-screen televisions occurred in the fourth quarter. Last, the company had fewer big product launches in the first quarter as compared to the same period the prior year.
Shares of Best Buy’s stock were trading down about 5 percent at $25.46 mid-day Tuesday following news of the company’s first-quarter results.
Best Buy President and CEO Hubert Joly said in a statement that the company has made “substantial progress” on a turnaround plan that he outlined in November, which the company is calling “Renew Blue.” Among the successes he cited: a 16 percent increase in domestic online sales; reaching an agreement to install Samsung micro stores, or “Samsung Experience Shops,” within all roughly 1,400 Best Buy locations, and beginning their rollout; negotiating rent reductions for an unspecified number of stores and closing one store; and eliminating $175 million in annual expenses.
That $175 million is on top of $150 million in annual expenses that was eliminated during the fourth quarter of the last fiscal year. The company said that it’s achieving the reductions through improved efficiencies and “the continued take-out of management layers.”
Best Buy’s efforts to cut costs and make its prices more competitive come at a time when the retailer is facing stiff competition from online retailers. In February, the company announced that it would match prices with competitors year-round—thus extending a policy that it adopted during the last holiday season—in an effort to end the practice of “showrooming,” whereby customers view products in stores only to buy them online at lower prices.
Sharon McCollam, Best Buy executive vice president, chief administrative officer, and chief financial officer, said in a statement that “the ongoing investment in price competitiveness” that contributed to the company’s first-quarter profit and earnings declines is expected to continue into the second quarter. However, the company’s cost-reduction initiatives are projected to make a positive impact in fiscal 2014.
Best Buy is Minnesota’s third-largest public company based on revenue, which totaled $49.6 billion for the fiscal year that ended February 2.