VOL. 126 | NO. 59 | Friday, March 25, 2011
Best Buy Plans to Get Small as Sales Fall
MAE ANDERSON | AP Retail Writer
NEW YORK (AP) – Weak demand for pricey flat-screen TVs and notebook computers helped push Best Buy Co.'s fourth-quarter net income down 16 percent.
The decline adds urgency to the electronics retailer's bid to remake its business by opening smaller stores and focusing on more profitable, fast-growing categories such as tablet computers and smartphones.
Worries about its ability to deal with tanking TV sales combined with a muted outlook for fiscal 2012 to send Best Buy's stock down $1.69, or 5.3 percent, to $30.16 in late day trading.
Fourth-quarter net income fell to $651 million, or $1.62 per share, from $779 million, or $1.82 per share.
Best Buy has been restructuring its international operations, particularly in China, and cutting costs in its U.S. supply chain. Excluding costs for those moves, net income totaled $1.98 per share. That beat the $1.84 analysts expected, according to FactSet.
Revenue edged down 2 percent to $16.26 billion. U.S. revenue fell 4 percent to $12.1 billion, while international revenue rose 4 percent to $4.1 billion.
Best Buy, the largest U.S. electronics chain, is contending with declining sales in a changing electronics market where more people are buying online or in discount stores such as Wal-Mart.
As more consumers do research online, they no longer need to traipse to a big-box store to see all of the latest TV models on offer, eliminating a key advantage for Best Buy.
In addition, new TV technologies, such as 3-D and Internet-enabled TVs, have failed to capture Americans' imagination – and dollars – the way smartphones and tablets like Apple Inc.'s iPad have.
To combat this, Best Buy says it is focusing on profitable areas where it has a relatively small share of the market, expanding selections of mobile phones, video games, appliances, e-readers and tablet computers.
It has shrunk space dedicated to less popular products. For example, its cut space for compact discs in half last year.
Best Buy is changing its TV-selling strategy by significantly increasing TV selection online – offering 100 models in stores but 300 more online only at more competitive prices.
The chain is also pushing hard to open smaller stores. The company is opening 150 smaller-format mobile only stores by the end of the year, nearly doubling its total to 325.
"We are exploring and redefining what the optimal big-box footprint is for us," CEO Brian Dunn said on a call with analysts.
Michael Vitelli, president of the Americas, said Best Buy doesn't plan to compete on price alone, but offer a variety of deals on financing, buy-back programs and services and other promotions that will vary by product category.
While those deals add value to purchases, they don't always translate well in product-price comparison searches, he said, so the company plans to try to market the deals more effectively.
"We sell thousands of products and services in dozens of different categories," Vitelli said. "Applying a single pricing strategy across all of our products in categories would not be practical or rewarding."
Revenue in stores open at least 14 months fell 4.6 percent during the three months ending Feb. 26, including a 5.5 percent decline in the U.S. That's an important retail measurement because it excludes stores that open or close during the year.
For the year, net income fell 3 percent to $1.28 billion, or $3.08 per share, from $1.32 billion, or $3.10 per share last year. Revenue rose 1 percent to $50.27 billion.
In fiscal 2012, the company expects earnings of $3.30 to $3.55 per share, excluding costs related to restructuring its international operations and cutting costs in its U.S. supply chain. Analysts expect $3.56 per share.
Best Buy, based in Minneapolis, predicts revenue of $51 billion to $52.5 billion. Analysts expect $52.1 billion.
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