Best Buy
swung to a loss in the third quarter, the latest signal that problems at
the consumer electronics retailer are growing more severe and showing
no signs of improvement.
Best Buy lost $10 million, 3 cents a share, after earning $156
million, 43 cents a share, a year earlier. Excluding one-time items,
Best Buy earned 3 cents a share. That is still far below analysts
expectations of 13 cents a share.
Significantly, same-store sales fell 4.3% in the
quarter—greater than the 0.7% slip last year—suggesting that Best Buy
continues to struggle to attract customers to its stores. Best Buy is
hampered by a greater shift toward e-retail: While a dominant
brick-and-mortar retailer, posting some $50 billion in sales last year,
Best Buy doesn’t enjoy such a stranglehold on the Web. There,
competitors like Amazon.com
and eBay have positioned themselves as lower-cost alternatives.
Complicating the situation further: Customers using Best Buy stores as
showrooms, browsing for an item and then using a smartphone to find a
cheaper price online. Other big-box retailers like Wal-Mart and Target aren’t struggling as much as Best Buy.
Revenue fell 4.7% to $7.7 billion in the quarter. “In line with
trends experienced over the last three years, Best Buy’s third quarter
financial performance was clearly unsatisfactory,” says new CEO Hubert
Joly.
The slip in sales and store traffic point to a bleak holiday selling
period. Christmas is a key time for retailers in which some retailers
see 40% of annual sales.
This latest quarterly report comes days after new Best Buy CEO Hubert
Joly unveiled a turnaround strategy called Renew Blue, a plan to cut
costs, drive higher returns on assets and combat showrooming. Meanwhile,
founder Richard Schulze,
ousted earlier this year over a scandal with his handpicked CEO Michael
Dunn, is reportedly readying a buyout bid of the retailer that’s said
to be near $26, a significant premium to today’s share price. “The
results we are reporting today only strengthen our sense of urgency and
purpose,” Joly says.
Best Buy stock fell 8.2% after the opening bell.
Looking ahead, Best Buy expects to generate $850 million to $1.05
billion in free cash flow next year, less than the earlier forecast of
$1.25 billion to $1.5 billion. Cash matters in transitional periods like
these. Its absence can force a company to crumble faster still. Best
Buy has already raised concerns by suspending profit and revenue
forecasts. As for this cash flow prediction, “the lowered look raises
concerns on future free-cash-flow generation and at what pace free cash
flow might deteriorate,” says PiperJaffray analyst Peter Keith.
Reach Abram Brown at abrown@forbes.com.
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