By Saabira Chaudhuri
Best Buy Co. (BBY) swung to a fiscal third-quarter loss as the
big-box consumer-electronics retailer recorded a large
restructuring charge, while same-store sales dropped.
Shares sank 5.8% to $12.97 in recent premarket trading as
earnings markedly missed Wall Street estimates. Through Monday's
close the stock has dropped 49% in the past year.
Best Buy has long struggled to keep up with changes in consumer
electronics as the weight of its big-box format inhibits it from
fending off the competitive pressure of online retailers like
Amazon.com Inc. (AMZN). The company has become a particularly acute
example of a phenomenon known as "showrooming," where
bargain-hunting shoppers browse stores then buy the products
cheaper online.
The company's earnings in the first two quarters of the fiscal
year suffered double-digit percentage declines as same-store sales
slid and gross margins narrowed. And in August, Best Buy suspended
its earnings view for the year, citing lower expectations for
industry-wide sales and uncertainty associated with several key
product launches in the back half of the year. On Tuesday, the
company didn't provide a view for either earnings or revenue for
the year.
The retailer has also been the target of a buyout effort by
founder Richard Schulze. It agreed in August to allow him access to
some due-diligence information. On Monday, Best Buy's shares were
buoyed premarket by a report that new Chief Executive Hubert
Joly--a turnaround specialist hired earlier this year to revive the
company's slipping sales--would meet with Mr. Schulze this week to
discuss ways to revive the struggling company.
Mr. Joly has recently said the company plans to not only close
stores but also make decisions about shrinking stores, reformatting
them or shifting the mix of big-box and standalone Best Buy Mobile
stores as leases come due. Best Buy, which has about 1,400
locations, will be putting particular scrutiny on 64 big-box stores
with especially low profitability that have lease renewals
approaching in coming years, he said. Mr. Joly has also said the
company is making e-commerce its No. 1 priority.
Mr. Joly called Tuesday's results "clearly unsatisfactory,"
adding that they only "strengthen our sense of urgency and
purpose."
Best Buy said same-store sales--which reflect revenue at stores,
call centers and websites operating for at least 14 months--fell
4.3% in the third quarter.
In the U.S., Best Buy said it recorded revenue of $431 million
in its online business, with growth in excess of 10%, and
registered comparable-store sales growth in mobile phones,
appliances and tablets and e-readers. However, it noted this growth
was more than offset by comparable-store sales declines in
notebooks, gaming, digital imaging and televisions. Best Buy said
it believes that tablet and notebook comparable store sales were
hurt by slower consumer purchasing in anticipation of major product
launches.
Internationally, same-store sales dropped 5.2%, as growth in
Europe was more than offset by declines in Canada and China.
For the quarter ended Nov. 3, Best Buy reported a loss of $10
million, or three cents a share, versus a profit of $156 million,
or 42 cents a share, a year earlier. The latest period included a
$36 million restructuring charge. Stripping out one-time items like
restructuring charges, per-share earnings were three cents versus
47 cents a year ago. Revenue was down 3.5% to $10.75 billion.
Analysts polled by Thomson Reuters recently expected per-share
earnings of 12 cents on $10.73 billion in revenue.
Gross margin narrowed to 24% from 25.6%.
Write to Saabira Chaudhuri at saabira.chaudhuri@dowjones.com
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