Best Buy's earnings take a dip

Electronics megaretailer Best Buy reported on Tuesday quarterly earnings of $153 million, or 36 cents per diluted share. Results were 15 percent lower than the $179 million, or 43 cents per diluted share, earned in the year-ago quarter ended in May.

Sales for the quarter--the company's first of fiscal 2010--were higher, though, jumping 12 percent year over year, to $10.1 billion from $8.9 billion.

Best Buy attributed the bulk of the earnings decline to restructuring charges, which reduced first-quarter income by $25 million, or 6 cents per diluted share. The company was hit by costs from changes to its U.S. store model and a shake-up of its European division.

Minus the restructuring charges, earnings were $178 million, or 42 cents per diluted share. This contrasts with its previous quarter, which saw earnings of $570 million, or $1.35 a share.

Analysts had expected income excluding charges of only 34 cents per share.

"Our first-quarter results reflect strong execution of our strategy in a difficult consumer environment," said Jim Muehlbauer, Best Buy's executive vice president of finance and chief financial officer. "Once again, our teams grew market share and improved the gross profit rate while maintaining a disciplined approach to expense management."

Best Buy's sales were certainly helped by the closure of Circuit City's retail stores. But they also were boosted by stronger growth in Best Buy Europe and gains from 185 new stores over the past year.

The company is upbeat about the year ahead, projecting more robust earnings for 2010 overall.

"We are pleased to report that the year is off to a good start, and we remain focused on delivering our annual earnings guidance of $2.50 to $2.90 per diluted share, excluding restructuring charges," said Muehlbauer. "Given the limited visibility to consumer spending in the back half of the year, along with the fact that a majority of the company's earnings are derived from the holiday selling season, it's prudent to maintain our original guidance at this point."

Best Buy does face some uncertainty. Brian Dunn will be taking the CEO reins this summer. Like other brick-and-mortar retailers, the company faces stiff competition from online rivals, including the new Circuit City Web site.

[humperdinc]

I agree that restructering charges make up the bulk of the "loss of profit." One of my jobs is working at Best Buy and about a little over a month ago, there was an all-store meeting about changes, which includes "bulking" all the separate departments into "two mega departments," getting rid of certain positions, and while adding a few part time jobs. I love the idea of having more employees help out, but at the same time, it seems as if this is a precursor to Circuit's downfall. If anyone remembers, there was an article here that suggested that one of Circuit's biggest mistakes that led to its downfall was the firing of 2000 of its top-paid employees and replacing them with part timers.

What Best Buy did isn't on the same level as that but it's starting to look like it.

[dragonwolf87]

Circuit City had a lot more going wrong with it than just the restructuring. Many people I know that worked for CC when it dropped commission sales knew it was going to go under then, it was just a matter of time (FTR, Best Buy never had commission to begin with). Having worked for Circuit myself, I saw it coming several years ago, too. They remind me of a little brother or little sister, seeing what big sibling Best Buy is doing and wanting to do it better, but not really knowing how to actually do that. Firedog seemed to me to be an attempt to mimic Geek Squad by looking at it from a customer point of view. It was for the most part a shell of what it could and should have been in order to be successful.

The issue with Circuit's restructuring is that it flat-out got rid of positions and people that it shouldn't have gotten rid of. They cut their full-time employees that were making more than a specific amount. It was a last-ditch effort to try to save the company. Best Buy's restructure, in contrast, was designed to open up more floor positions so that the sales floor was not so woefully understaffed. They also got rid of the CA idea (customer assistant, I think it was called, it was a group of employees that were trained in all the departments, that evidently didn't work as well as planned and I'm not sure it made it very far out of the pilot stores). "Merging" the departments helped reduce management overhead (they were offered full time jobs in the new positions that opened up), because the stores now only need 2 or 3 department managers instead of 6 ("leadership" positions were the only thing that were really cut, and other positions opened to help counterbalance the cuts).

[ibeetle]

@humperdinc

If Best Buy is bulking and now only has two departments you really need to dust off your resume and start looking for a new job. KB Toys, Circuit City, and CompUSA all practiced a form of this type of restructuring about 3 or 4 years before the kaka hit the fan.

Borders did it about 4 years ago. My Brother-in-Law lost is job with the company of 5 years. Now Borders is winding itself down and expected to start shuddering its door in the next 12-15 months.

When retailers start bulking, combining many departments into few, and/or remodeling large stores into smaller ones, or closing locations altogether; one word, trouble. You can almost certainly give them 2-4 years then its last on out turn out the lights.

[L33tLuXX0rz]

I wonder how they will do with the new Circuit City website, that website really puts their deals in your face if you go to their front page

[dragonwolf87]

The don't match "Circuit City" anymore, because a clearinghouse owns Circuit now and is not considered a competitor.

[digitalhecht]

A ha. Viva la Fry's!!!

[dennisl59]

Is it "possible" that Best Buy is hurting because Walmart is under-cutting their prices?

[sythara]

or newegg

[SactoGuy018]

And the threat from Wal-Mart is NOT to be taken idly. Wal-Mart has begun to substantially upgrade their electronics sections at their stores and we could by late this summer see some really awesome selection of electronics at their Wal-Mart Supercenters--including a selection of Apple MacBook notebooks. It's a particularly huge threat, especially now that VIZIO has just unveiled a new line of highly-advanced LCD panels (including models with LED backlighting and 120 Hz refresh rates!) that way undercut what LG, Samsung and Sony have done in terms of pricing; Wal-Mart is probably VIZIO's biggest reseller.

[ibeetle]

@sactoGuy018--

You are completely correct. The Wal-mart near me just overhauled its electronics department. 4 Blu-ray Disc players under $250 (one under $200) and a Blu-ray Disc section close enough to Best Buys the rival it.

With the cheapest Blu-ray Disc player on the shelfs in my Best Buy market being over $300 and with Blu-ray Disc movies selling on average $3-$5 that of Wal-mart on top of already being hurt by internet sales and a depressed economy Best Buy is going to have a very rocky road in the upcoming year or two. Wal-mart in the mean time is transforming into what Sears was 50 years ago. Quite literally a place for everything.

[darthgerber]

I put my hand up on your hip; when I dip, you dip, we dip.