Best Buy to cut costs and close stores
MINNEAPOLIS — Best Buy Co. said it plans to close 50 U.S. big box stores and open 100 small mobile locations in the U.S. in fiscal 2013 and cut $800 million in costs by fiscal 2015. The news came today as the biggest U.S. specialty electronics retailer posted a fiscal fourth quarter loss partly due to restructuring charges.
Despite the loss, Best Buy’s adjusted results for the quarter topped Wall Street’s expectations. But the company’s full year revenue guidance fell slightly short of analysts’ expectations, sending its stock down 6 percent.
Best Buy, which has 1,450 locations nationwide and 2,900 globally, is focusing on closing some of its hulking stores to concentrate on smaller Best Buy Mobile outlets because of two emerging trends. Sales of TVs, digital cameras and videogame consoles have weakened, while sales of tablet computers, smartphones and e-readers have increased. And with the rise of competition from Internet rivals like Amazon.com, shoppers aren’t flocking to big-box stores like they used to.
Best Buy is trying to avoid the fate of its former rival Circuit City, which went out of business in 2009, in part by shrinking its square footage footprint. Other retailers with large stores are doing the same. Sears Holdings Co., for example, said earlier this month it would close 100 to 120 stores to become nimbler.
Best Buy lost $1.7 billion, or $4.89 per share, for the period ended March 3. That compares with a profit of $651 million, or $1.62 per share, a year ago.
The Minneapolis company said its quarterly results included $2.6 billion in charges. They were 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.
Best Buy’s stock fell 32 cents to $26.30 before the market opened.
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.
Going forward, Best Buy said it expects to reduce about $250 million of its costs in fiscal 2013. The company foresees 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, with revenue in stores open at least one year falling 2 percent to 4 percent. That fell slightly short of analyst predictions of $51.6 billion.
“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, with Apple stores and Amazon.com the two most likely culprits.”
Shares fell $1.68, or 6.3 percent, to $24.94 in morning trading. The stock had been up 14 percent since the beginning of the year.
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