Best Buy Sees Flat Year Ahead

Majaps, connected home, A/V up; mobile, legacy CE down
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Majaps, connected home, A/V up; mobile, legacy CE down
Absent a resurgence in mobile, Best Buy is anticipating flat revenue this year as gains in appliances, home automation and home theater will likely be offset by continuing weakness in legacy CE categories.

Updated! Absent a resurgence in mobile, Best Buy is anticipating flat revenue this year as gains in appliances, home automation and home theater will likely be offset by continuing weakness in legacy CE categories.

Commenting on the company’s fourth-quarter and full-year results, chief financial officer Sharon McCollam said revenue will also see-saw this year, with revenue falling for the first six months and growth returning in the back half of 2016.

The product outlook continues a trend that took shape in the fourth quarter. U.S. sales slipped 1.5 percent to $12.5 billion and comps declined 1.7 percent for the three months, ended Jan. 30, as increases in health and wearables, home theater and majaps were more than offset by what Best Buy described as “significant declines” in mobile phones, tablets and digital imaging, contributing to a 9 percent decline in net earnings, to $477 million.

“We believe that the softness that we saw in the NPD-tracked categories and mobile phones will continue” in Q1, McCollam said.

On an earnings call, chairman/CEO Hubert Joly attributed the slump in wireless to high smartphone penetration and low demand for the current crop of handsets. Help should arrive in subsequent quarters though, as a rash of “more compelling phone launches,” including, ostensibly, new signature flagship models from Apple, Samsung and LG, hit the market.

Despite the soft top line, McCollam projected “flattish” operating income for the full year thanks to ongoing cost reductions and “gross profit optimization initiatives.”

In a statement, Joly said the company is entering the next phase of its Renew Blue revitalization strategy, which calls for:

* “[Building] on our strong industry position and multi-channel capabilities to drive the existing business”;

 “[Driving] cost reduction and efficiencies”; and

* “[Advancing] key initiatives to drive future growth and differentiation.”

 Indeed, digital proved to be a fourth-quarter bright spot for Best Buy, as higher conversion rates sent online revenue up 13.7 percent to nearly $2 billion, raising e-tail’s share of total domestic revenue to 15.6 percent, up from 13.6 percent last year.

Joly added that the initiatives — which include curated, solution-based merchandise and an enhanced services portfolio to support it — are expected over time to help “accelerate revenue and operating income growth by taking advantage of opportunities provided by ongoing technology innovation and the need customers have for help.”

For the full year, total revenue slipped 2 percent, to just under $40 billion, and net earnings fell 27.3 percent, to $897 million, reflecting the impact of unfavorable currency exchange rates and the consolidation of Best Buy’s Canadian operations amid softness in that country’s economy and CE industry.

The retailer noted however that domestic revenue was up for the year, ahead nearly 1 percent to $36.4 billion, and had grown by more than $500 million over the past two years.

The company also said it would no longer provide its traditional post-holiday sales assessment in early January due to that month’s “increasing significance” to overall Q4 results.

A breakout of U.S. sales mix and category performance in the fourth quarter follows:

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