Situation At Best Buy Worsens: Q3 Figures Shows No Signs Of A Turnaround
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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