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Best Buy: Comp Sales, Store Closures Sank Profits

Minneapolis – Best Buy’s outgoing chief financial officer Jim Muehlbauer attributed the company’s 97 percent drop in third-quarter operating income to store closures and lower comp sales, but projected that the rate of decline would ease this period.

Addressing analysts on a conference call following this morning’s third-quarter earnings announcement, Muehlbauer and president/CEO Hubert Joly said profits were also impacted by unique events including tough year-over-year comparisons in mobile phones; increased sales of smaller, lower-margin TVs; severance payouts to senior executives; and the higher cost of Blue Shirt training and performance bonuses.

Outgoing president U.S. Mike Vitelli said the enhanced training and incentives for sales associates, as well as their expanded authority to match prices, have increased their sense of “empowerment and customer engagement” as the company enters the all-important holiday selling season. The new operating model, borrowed from Best Buy Mobile, is expected to yield “positive results” in Q4, he said, which would help offset the higher investment.

However, the executives wouldn’t quantify the possible negative impact of price matching on gross margin rate, citing the newness of the policy and the company’s already competitive product pricing.

Muehlbauer and Vitelli added that the same new product introductions that delayed consumer purchases in the third quarter and impacted comp sales, such as Windows 8 and a slew of new tablets and smartphones, should help fuel holiday revenue.

Joly added that he’s pleased with the progress that’s been made in his 11 weeks on the job, which includes a new management team and a framework for a turnaround. “I’m excited by the opportunity to turn around Best Buy,” he said.