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Best Buy Narrows Fourth-Quarter Loss

1 Mar, 2013 By: Erik Gruenwedel

Chain downsizing packaged media shelf space going forward

Best Buy Co. March 1 reported a fourth-quarter (ended Feb. 2) net loss of $409 million, compared with a loss of $1.8 billion during the previous-year period. Domestic revenue reached $12.6 billion, down 0.3% from last year.

Domestic operations generated operating income of $649 million, down 27% from operating income of $888 million last year.

The decline was driven by the loss of revenue from 49 big-box stores that were closed earlier in the year, but was offset by a positive 0.9% same-store sales increase and incremental revenue from 126 new Best Buy Mobile standalone stores.

The CE chain also benefited from an increase in pre-Super Bowl sales, as the annual football game occurred during Q4 unlike the same period last year. At the same time, the timing of the game will negatively impact first-quarter revenue going forward, Best Buy said.

Domestic online sales increased 11.2%, reaching a record $1.3 billion. Best Buy said the recently enacted price-matching guarantee and related shipping policies (order online, pick up at local store) were “high-effective” traffic generators that drive the better-than-expected results.

Principal product categories included mobile phones, tablets, e-readers and appliances, partially offset by declines in video games and digital imaging.

Best Buy said it will restructure bestbuy.com during the next 24 months, including better marketing of the previously announced price-matching online and in stores against major competitors. The winter holiday promotion becomes permanent March 3.

The company expects to shutter five to 10 big-box stores domestically while opening 12 smaller footprint Best Buy Mobile, 10 Magnolia Design Center stores, and 18 to 25 Pacific Kitchen & Home store-within-a-stores.

Entertainment same-store sales, which included music, movies and video games, fell 19%, up 1% from a decline of 18% during the previous-year quarter. The segment represented 12% of Best Buy domestic sales compared with 15% last year.

In a call with analysts, CEO Hubert Joly said Best Buy would downsize shelf space of packaged media. The shift in strategy will not impact Best Buy CinemaNow, including early and street date access to electronic sellthrough of new-release movies — many with UltraViolet functionality.

“We will reduce space allocated to the negative growth and low margin CD and DVD categories and replace it with higher gross categories like mobile, appliances and accessories and to support these expanded categories, we will deepen the product assortment, increase Blue Shirts training and we prioritize marketing investments,” Joly said.

Finally, the CEO acknowledged that no buyout offer was received from founder Richard Schulze by the Feb. 28 midnight deadline.

Joly said that during the prolonged discussions with Schulze, the former chairman introduced three private equity investors who sought to obtain board seats in exchange for a $1 billion investment in Best Buy. The CEO said the costs of these investments would be excessive and dilutive to existing shareholders.

“Therefore, [Best Buy] concluded to not accept these offers,” Joly said. “Despite the significant amount of time that management has spent on this process, the organization has remained focused … as we move forward for the benefit of all of our stakeholders.”


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