News Column

Best Buy says innovations are missing at the moment

May 22, 2014

By Kavita Kumar, Star Tribune (Minneapolis)

May 22--The lack of big product launches or innovation in consumer electronics affected Best Buy's top line in the first quarter, but the company still managed to swing to a profit, driven in part by cost-cutting.

The Richfield-based company's adjusted profit from ongoing operations was flat for the February-to-April period but sharply higher than analysts expected.

Its revenue fell 3.3 percent, which was faster than investors expected, and executives said Thursday not to expect a sales rebound during the next two quarters because electronics makers have no major new products until the holiday season.

Smartphone sales, in particular, may be soft while consumers wait for upgraded products around the holidays, the company said. Tech media and analysts widely expect Apple Inc.'s iPhone, for instance, to be updated with larger screens late in the year.

"We need some new excitement in those categories," Sharon McCollam, Best Buy's chief financial officer, told analysts in a conference call. An industry market research firm found a 2.6 percent decline in overall U.S. electronics sales, she noted, adding, "We have to address this consumer electronics softness, which we believe is being greatly driven by a lack of innovation."

Shares in Best Buy were up 2% in afternoon trading after surging 7% earlier in the day.

Executives said the company's recent shift to make its stores capable of distributing orders from online customers had contributed to a 29 percent gain in online sales in the quarter. And soon, they added, the company will be offering returned and open box items to the online offerings.

For several years, the nation's largest electronics retailer has grappled with declining sales due to more rapid price compression in products, particularly TVs and computers. More recently, Best Buy has aggressively matched discounted pricing by competitors. Comparable sales at Best Buy's U.S. stores fell 1.3 percent during the February to early May period, slightly faster than the 1.2 percent drop they experienced at the same time a year ago.

"Nevertheless," Best Buy CEO Hubert Joly said in a statement, "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.

The company's profit improvements have been achieved through cost-cutting and operational efficiencies. Sales and general expenses fell just over 1 percent compared to a year ago.

The Richfield-based company said it earned $481 million, or $1.31 a share, for the three months ended May 3. Adjusted for restructuring costs and other one-time items, Best Buy's profit amounted to 33 cents per share, well above the 19 cents analysts had forecast.

Analysts' per-share profit forecasts varied unusually widely this period, with the lowest at 11 cents and the highest at 28 cents. Retailers broadly have experienced difficulties since last fall, with shoppers pulling back during the holiday season and thultracoldld and snowy winter that hit much of the nation.

A year ago, Best Buy reported adjusted per-share profit of 29 cents from continuing operations. Including operations it was in the process of selling, Best Buy had a net loss of $81 million, or 24 cents a share.

Revenue was $9.04 billion in the latest quarter, down from $9.35 billion a year ago. For the latest quarter, analysts were expecting the company to experience a 1.9 percent dip in revenue.

After tripling in value last year to over $40, Best Buy shares are down about 40 percent this year and have been trading around $25 since the company in January reported deeper-than-expected pressure on holiday revenue.

Kavita Kumar -- 612-673-4113


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Source: Star Tribune (Minneapolis, MN)

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