TVs Top Reason For Best Buy's Profit Fall - Twice

TVs Top Reason For Best Buy's Profit Fall

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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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