Best Buy Income Plummets 90%21 Aug, 2012 By: Erik Gruenwedel
Consumer electronics chain says status of buyout offer rests with founder and former chairman Dick Schulze
Best Buy Co. Aug. 21 reported second-quarter (ended Aug. 4( income of $12 million, down 91% from income of $128 million during the previous-year period. Total revenue dipped 3% to $10.5 billion from $10.8 billion last year.
Best Buy attributed the loss in part to more than $91 million in restructuring charges due to store closures, ongoing shifts in consumer buying habits regarding electronics and a slowdown in purchases in China, among other issues.
Indeed, international operations reported an operating income loss of $50 million due primarily to an increased mix of lower-margin wholesale sales and promotional activity within a price competitive environment for mobile phones.
CFO Jim Muehlbauer said there continues to be weakness in the China consumer electronics market, which has resulted in lower consumer spending as growth in the Chinese economy slows, weakness in the housing market and by the absence of government-sponsored rebate programs for appliances and other products.
Domestic same-store sales dropped 1.6% driven by declines in video games, digital imaging, televisions and notebooks. These declines were offset by same-store sales growth in tablets and mobile phones, and steady appliance and eReader sales. Domestic online revenue grew 14% compared with the prior-year period.
Notable achievers included mobile phone sales, up 35% in same-store sales; notebook sales, and mid-single-digit unit growth in small-to-medium-sized TVs.
The lower-than-expected results sent shares of the Minneapolis-based consumer electronics retailer falling nearly 6.5% in midmorning trading after opening down 10% from the Aug. 20 close of $18.16 per share.
“Consumers remain very cautious, and sales in the industry may be dampened at the moment by those who are holding back on spending as they await some highly anticipated new technology releases,” said interim CEO Mike Mikan in the call.
Best Buy declined to issue fiscal guidance for 2013.
Investors reacted negatively Aug. 20 to the apparent stalemate in the buyout offer from founder and former chairman Richard Schulze and the appointment of new CEO Hubert Joly, a French executive with limited retail experience. Joly begins his new role in early September.
Separately, Mikan wouldn't offer more detail other than the board of directors agreed to give Schulze's access to key company metrics as part of a due diligence process. Schulze has rejected the process due to contractual language, among other issues.
"Our proposal still stands and we feel it's up to Dick to respond from there," he said.
The interim CEO said ongoing market challenges, languishing sales and incoming new chief executive have had an impact on employee morale at both the retail and corporate level.
“I can't say that it isn't impacting the … engagement of employees,” Mikan said. “That being said, everyone’s focused on improving business performance. And there’s a great passion and belief in the brand of Best Buy. And so for the most part, we believe that whether it's in the stores or within the corporate campus here, that people are looking to the future and are excited about the prospects and we're going to continue to stay focused at.”