After several disappointing quarters that left shareholders concerned about its future, Best Buy has announced a host of changes to its operation that it believes, could dramatically improve its financial standing.
First up, Best Buy says that it will buy out Carphone Warehouse (CPW)'s interest in the company's U.S. and Canadian Best Buy Mobile business. Currently, Best Buy and Carphone Warehouse share all profits related to sales through the Mobile retail service. By buying CPW out for $1.3 billion, the retailer believes that it can more fully capitalize on the growth of mobile devices.
"Best Buy believes that there is a significant untapped opportunity as connections migrate from phones to other connectable devices such as tablets, laptops, TVs and e-readers," the company said in a statement. "This transaction will enable Best Buy Mobile to accelerate the deployment of operational and connectivity expertise to these devices and for Best Buy to fully capture the profit potential of these opportunities."
However, once the payment is made, CPW isn't necessarily out of Best Buy's hair. For one, CPW owns 50 percent of Best Buy Europe, the division that operates the company's stores across that continent. In addition, CPW has been requested by Best Buy to stay on in a "consultancy" capacity, helping to run the Best Buy Mobile business across the U.S. and Canada for up to five years.
Looking across the pond, Best Buy has also decided to shutter all 11 big-box stores it currently operates in the U.K. by the end of the year. The stores, which were launched in April 2010, were called a "test" by Best Buy to see if it could see the same level of success in the U.K. as it did in the U.S. and Canada. However, over the last year, those stores have proven to be a drain on the company's financials, prompting it to rethink its strategy in Europe.
As part of that plan to fix its troubles in Europe, Best Buy says that it will bring its "Wireless World" experience to some of the 2,500 small box mobility stores it currently operates in Europe with CPW. Those stores, which operate under The Carphone Warehouse and The Phone House names, will provide customers with "an even wider range of connectivity devices."
But that's not all. Best Buy also said today that it has started a new "Global Connect Venture" with CPW that plans to help third-parties around the world that are trying to build up a mobile and connectivity business. In return, the companies say that they will take a share of the profit generated by the firms they help.
Best Buy is even looking to small businesses to expand its operation. It said that it has acquired a managed IT services provider that caters to small and midsized businesses. It plans to announce the details on that acquisition, including which company it bought, later today. Update 11:06 a.m. PT: The company being acquired is MindShift Technologies, in $167 million deal expected to close "on or around" the end of the calendar year, Best Buy said.
A financial play
Inevitably, Best Buy's decision to change up its business in such a way comes down to cash. And according to the company, it believes these moves could help it save between $180 million to $210 million in pre-tax money by modifying its relationship with CPW. That said, the company did caution that it will be forced to take a one-time expense of $1.3 billion during the 2012 fiscal year to account for the CPW buyout.
But improved financial standing doesn't appear to be the main cause for concern among shareholders. After all, over the last four quarters, Best Buy has generated over $1 billion in profit. During its last-reported fiscal year ended February 26, the company made $1.3 billion on over $50 billion in revenue.
And yet, shareholders are selling Best Buy's stock in droves. Since January 1, Best Buy is down more than 20 percent. Over the last 12 months, its shares have slipped nearly 39 percent.
Those declines are due mainly to the several concerns shareholders have about Best Buy's business. For one, the company continues to have trouble competing with better pricing on online sites. What's more, the economy's slow recovery has pushed consumer spending lower than shareholders would like. Those two main factors have led Best Buy to miss Wall Street expectations as of late, prompting some to wonder if it's starting to lose its footing in the retail market.
But through it all, Best Buy CEO Brian Dunn has stayed positive. In a statement accompanying his firm's sweeping changes, Dunn said today that Best Buy has all the components to continue to be a top retailer.
"No other retailer has our carrier and vendor relationships across all product categories, our well-established multi-channel presence and the Geek Squad ensuring that you walk out with your technology working," Dunn said.