Best Buy Q1 Back In The Black

Minneapolis — Cost reductions and supply-chain efficiencies offset soft sales to return Best Buy to profitability in the first quarter.
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Minneapolis — Cost reductions and supply-chain efficiencies offset soft sales to return Best Buy to profitability in the first quarter.
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Minneapolis — Cost reductions and supply-chain efficiencies offset soft sales to return Best Buy to profitability in the first quarter.

Net earnings were $461 million for the three months, ended May 3, compared with a year-ago loss of $81 million.

But net sales slipped 3.3 percent to $9 billion and comp sales declined 1.9 percent for the period.

In the U.S., net sales fell 2.1 percent to $7.8 billion and comps decreased 1.3 percent. Online sales rose 29.2 percent to $639 million.

President/CEO Hubert Joly said the quarter “reflects continued progress in our Renew Blue transformation. As expected, domestic comparable sales declined … in a context where sales in the consumer electronics industry continued to decline. Nevertheless, we achieved market share gains in the U.S., fueled by our improved price competitiveness and an enhanced customer experience focused on advice, service and convenience.”

Indeed, CE comp sales fell 4.1 percent on declines in home theater, and the category now represents 29 percent of Best Buy’s U.S. sales mix, down from 30 percent last year.

The computing and mobile phone business, which comprises nearly half of the chain’s revenues, was essentially flat for the quarter, as declines in tablets offset gains in computing.

Majap comps rose 9.1 percent, although white goods’ share of revenue remained flat at 7 percent, and comps for the entertainment segment edged up 1.5 percent on strength in gaming.

Comps for services, which include service contracts, extended warranties, product repair, computer services, and delivery and installation, fell 13.5 percent.

The nearly 30 percent increase in online sales was driven by improved inventory availability due to chain-wide ship-from-store capabilities; higher average order value; increased traffic stemming from a greater investment in online marketing; and a higher number of online orders being placed from the retail stores, the company said.

U.S. gross profit slipped 70 basis points to 22.7 percent, reflecting higher mobile warranty costs; investments in price competitiveness, particularly in accessories; and less favorable terms of a new credit card agreement.

The decline was partially offset by $161 million in cost reductions, more effectively managed promotions and tighter expense management throughout the company.

Citing such initiatives as the forthcoming Samsung and Sony home-theater shops, the new ship-from-store capability, and a new mobile installment billing program, Joly said the company “made progress against our three business imperatives, which are to improve our operational performance; build our foundational capabilities to unlock future growth strategies; and leverage our unique assets to create a differentiated value proposition that is meaningful to our customers and our vendors.”

Looking ahead, chief financial officer Sharon McCollam forecast continued industrywide CE sales declines in the second and third quarters, and ongoing softness in mobile phones as consumers await the launch of iPhone 6. Absent any major product launches, the company anticipates comp-sale declines in the low-single digits for the period, she said.

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