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TVs Top Reason For Best Buy’s Profit Fall

MINNEAPOLIS —

Weak demand for 3D and IPTVs,
and a $222 million restructuring charge to close
stores in China and Turkey, led to a 16.4 percent profit
decline for Best Buy during its fiscal fourth quarter.

Net earnings, unadjusted for the one-time charge,
totaled $651 million for the three months, ended Feb.
26, on net sales of $16.3 billion. Revenue slipped 1.7
percent as comp-store sales slid 4.6 percent worldwide.

“Overall demand for key consumer electronics products
was a challenge for the industry last year,” CEO
Brian Dunn said in a statement.

But the company managed to “partially mitigate
these challenges and build critical capabilities for profitable
growth,” Dunn said, including continued growth
in connectivity products and services and improvements
in its online and international businesses.

What’s more, the total gross profit rate of 24.4 percent
reflected a 40-basis-point year-over-year improvement,
CFO Jim Muehlbauer noted, and the U.S. gross
profit rate was up 90 basis points to 24.5 percent, reflecting
continued growth in Best Buy Mobile and a
lower mix of computing and entertainment hardware
and software.

Gross margin rates improved slightly, as a larger
portion of Best Buy’s vendor programs were oriented
towards purchase incentives rather than advertising
support, which is recorded as a reduction in selling,
general and administrative expenses (SG&A), Muehlbauer
said.

In the U.S., fourth-quarter revenue slipped 3.7 percent
to $12.1 billion and comp-store sales fell 5.5
percent. Operating income declined 10.3 percent to
$986 million.

Broken out by category, comps for CE, the company’s
largest category, declined 6.5 percent, home
office comps slipped 2.5 percent, and entertainment
hardware and software fell 14.3 percent.

The declines were largely attributed to weak consumer
demand for advanced TVs and soft sales of netbook
computers, compared with the year-ago period
when Windows 7 was launched.

The declines were partially offset by a low double-
digit comp increase in mobile phones, driven by
growth in smart phone sales.

Other gainers included appliances, up 6.5 percent;
services — comprised of extended warranties, service
contracts, computer-related services, product repair,
and delivery and installation of home theater, mobile
audio and appliance products — up 7.5 percent; and
online sales, up 11 percent.

Best Buy estimates that it lost market share during
the quarter due to early holiday promotions by competitors
and the high market-share levels it commanded
during the prior-year period.

For the full year, revenue rose 1.1 percent to $50.3
billion, and net earnings slipped 3 percent to $1.3 billion.

Muehlbauer said Best Buy plans to continue to
drive growth in profitable areas, control costs, and focus
and restructure Best Buy’s international portfolio
to enhance returns and improve its capital allocation
strategy. The company is budgeting about $800 million
for capital expenditures, including the opening of
an additional 150 Best Buy Mobile small-format stores
in the U.S.

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