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Best Buy Returns to Profitability

27 Feb, 2014 By: Erik Gruenwedel

No. 1 consumer electronics retailer narrows same-store entertainment sales decline to 5.6% from 18.9%

Best Buy Co. Feb. 27 reported fourth-quarter (ended Feb. 2) net income of $293 million, compared with a net loss of $409 million during the previous-year period. Revenue dipped 3.1% to $14.4 billion from $14.9 billion a year ago.

In the United States, however, operating income fell almost 40% to $393 million, from $650 million in the previous-year period. Revenue declined 1.8% to $12.3 billion.

Domestic same-store sales dipped 1.2%, which included a 0.9% increased decline in consumer electronics to 5.9%. Entertainment sales, which include movies and music, narrowed same-store sales declines 13.3% to 5.6% from 18.9% a year ago. Entertainment represented 11% of total domestic revenue, compared with 12% a year ago.

Comparable online sales increased nearly 26% to $1.57 billion due to a higher average order value, improved inventory availability supported by ship-from-store and online distribution center expansion initiatives, increased traffic, and higher conversion on both the core and mobile sites.

However, online sales generated lower margins than retail stores due to the depressed margins of online product mixes and ongoing costs in building out online infrastructure and attach rates, among other issues, according to CEO Hubert Joly.

Notably, online purchases of hardware items remain challenged (compared to stores) in driving incremental revenue from sales of accessories and services contracts, including The Geek Squad, according to CFO Sharon McCollam.

“Those are the big opportunities for us online,” McCollam said in the fiscal call.

Joly said Best Buy will continue to drive efficiencies across all platforms, including allocating greater authority and responsibility to local store general managers. A recent media report said Best Buy is downsizing middle management, including laying off 500 managers in recent weeks, and another 950 employees in Canada.

“We focused on things we can control,” Joly said. “We’re approaching the [2015] fiscal year in a prudent fashion.”

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