Feb. 27--Best Buy Co. says it is seeing fruits of its "Renew Blue" turnaround at a faster clip than even it imagined, as the company closes the books on a year dinged by a disappointing holiday season.
Leaders of the Richfield-based retailer said Thursday that they set a goal of excising $725 million in excess costs over an unspecified number of years, and last year were able to trim $765 million.
"That's much faster than anybody expected," CEO Hubert Joly said in an interview.
Joly did not confirm reports that the company laid off 2,000 store managers on Wednesday, but acknowledged that some stores saw cuts. But he stressed that savings aren't coming on the backs of employees.
The "vast majority" of cost savings have come from non-salary expenses, he said, such as procurement processes, supply chain savings and reductions in the number of returns, replacements and damages.
"I consider reducing headcount is never a priority," he said. "Sometimes it is inevitable and you have to do it. But we're not declaring victory based on reducing headcount."
He said the company continues to invest in people and technology when it serves efforts to build online traffic or bring new customers to stores. "We have to adapt to the times," he said.
Fourth-quarter profit at the nation's largest consumer electronics retailer easily beat investors' lowered expectations, but executives tamped down hopes for the coming months, saying sales were expected to remain "slightly negative" through the first half of the year.
"We are focused on what we can control and are approaching the year in a prudent fashion," Joly told investors in a morning conference call.
The company said it earned $293 million, or 83 cents a diluted share, in the three months ended Feb. 1. That compares to a loss of $409 million in the same period a year ago.
Revenue was $14.5 billion, down from $14.9 billion a year ago. Sales in U.S. stores open at least one year fell 1.2 percent, more than the 0.9 percent drop the company announced last month for the first nine weeks of the quarter.
Best Buy shares has risen about 5 percent by midday on the New York Stock Exchange.
The news came a day after the company reportedly laid off what would amount to about 1.4 percent of its workforce, in its biggest job action since July 2012. The company's turnaround through much of 2013 was dampened by weaker-than-expected results during the holiday period.
"We gained market share," Joly said, "but it came at a cost."
The cost was promotional pricing that eroded profit margins.
A bright spot for the company came in online sales and, in particular, Best Buy's "ship-from-store" service that has been expanded to all 1,400 stores.
Online sales increased by 25 percent, compared with an 11 percent bump last year, with sales picking up after the holidays. Joly acknowledged the company "has some catching up to do," but said that it is gaining market share online as well.
Sales from the company's website accounted for 12.7 percent of total sales in the quarter, up from 10 percent a year ago. The company replaced its decade-old search engine before the holidays, which it said provided a needed boost in transactions, and that it expects even bigger payoffs in the year ahead.
Half of online purchases are picked up in stores, which the company sees as a competitive advantage over online-only retailers.
"We love that," said chief financial officer, Sharon McCollam, who said it gives store workers the chance to interact and "build relationships" with customers.
"One thing the competition cannot do is give it to them at this very moment," she said.
Adjusted for restructuring charges and other one-time issues, Best Buy's profit amounted to $1.24 in earnings per share, well above the $1.01 that analysts were expecting after they reduced forecasts last month but below the $1.47 comparable figure of the year-ago quarter.
In early January, analysts were forecasting adjusted earnings of $1.62 per share. They slashed that number in the wake of Best Buy's mid-January announcement of the 0.9 percent drop in same-store sales during the holidays.
Best Buy executives in November warned they expected the holiday season to be heavily promotional and that they intended to match prices of competitors, even online sellers that tend to have a lower cost structure than the company does.
Joly said that the company's "Renew Blue" structural transformation is a "multiyear journey." He added, "While it is off to an encouraging start, it is still in the early stages."
Officials said that while it appeared that sales declined in January, they were in fact slightly better than during the holidays and "in line" with expectations when accounting for a profit-sharing payment made last year but not this year.
(c)2014 the Star Tribune (Minneapolis)
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Original headline: Best Buy says turnaround effort is making progress
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