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Best Buy Swings to 3rd-Quarter Loss on Restructuring Charge, Lower Sales

Date : 11/20/2012 @ 7:34PM
Source : Dow Jones News
Stock : Best Buy (BBY)
Quote : 39.01  0.53 (1.38%) @ 6:30AM
Best Buy share price Chart

Best Buy Swings to 3rd-Quarter Loss on Restructuring Charge, Lower Sales

Best Buy (NYSE:BBY)
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   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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