News Feature | August 21, 2013

Best Buy Earnings Report Surprises Wall Street

Source: Retail Solutions Online
Sam Lewis

By Sam Lewis

Best Buy Logo

Electronics retailer reports first profit in a year

On Tuesday, Best Buy sent out a shock wave through its investor relations channel with the announcement of its first quarter of profit in a year, and its largest profit since 2011. The company reported net profits of $266 million, or 77 cents per share, for the quarter. This figure obliterates the $12 million, or four cents per share, of net profits it posted in the same time period last year. Revenue, however, saw a loss, dropping to $9.3 billion versus $9.34 billion last year. Analysts forecasted Best Buy to earn significantly less than they did. Predictions of only $38 million, or 12 cents per share, on $9.13 billion in revenue were given to the electronics retailer. Same store sales still saw a loss, decreasing 0.6%, but this figure is much better than a year ago where same store sales saw a decline of 3.3%.

The company is in the middle of a turnaround regime, which includes a price-matching policy, multi-channels of retail, improvements to, cost reductions over the course of the next several years, and, unfortunately, closing some of its big box stores — a necessary evil to counter the costs of brick-and-mortar overhead. According to CEO Hubert Joly, these actions have led to savings for the quarter totaling $65 million.

These actions have also helped Best Buy eliminate the “showrooming” aspect of retail, where customers browse products in a brick-and-mortar store, then find their desired products, often at a less expensive price, through other channels of commerce. By revamping its website, which continues to be improved, online sales improved 10.5 percent for the quarter. “The sales number is even more impressive considering Best Buy’s entirely new website won’t launch until 2014, leading me to believe that price matching, and advertising of price matching, is closing the price perception gap with Amazon,” wrote Belus Capital Advisors CEO Brian Sozzi.

Another key element in Best Buy’s turnaround has been its partnerships with Samsung and Microsoft. Despite the closing of several poorly performing stores, Best Buy has established “store-within-a-store” concepts inside its big box locations. This strategy essentially has killed two birds with one stone. It addresses excess and unused floor space, while boosting sales of popular items like computers, mobile devices, and the accessories for both.

A turnaround in one quarter is hardly considered a comeback, and Joly knows that. “This is the year of transition. This is not a 90-day turnaround. Like I said before, this is a journey. We’re at the bottom of the second inning.” However, the dramatic boost in sales Best Buy has seen in a year’s time holds a lot of promise for Best Buy to return to success, not just being a display case for online retailers.