Best Buy Profit Tops Estimates as Schulze Makes No Offer

March 1 (Bloomberg) -- Best Buy reported fiscal fourth-quarter adjusted profit that topped analysts’ estimates after a policy of matching rivals’ prices helped holiday sales. Sheila Dharmarajan reports on Bloomberg Television's "In The Loop." (Source: Bloomberg)

Best Buy Co. (BBY) posted fiscal fourth- quarter adjusted profit that topped analysts’ estimates and said the retailer will focus on continuing its turnaround after failing to receive a takeover offer from its founder.

Excluding items such as restructuring costs and charges to write off goodwill for operations in Canada and China, profit in the quarter ended Feb. 2 was $1.64 a share, the Richfield, Minnesota-based company said today in a statement. The average of 18 analysts’ estimates compiled by Bloomberg was $1.55.

Chief Executive Officer Hubert Joly, who took over in September, has closed stores and matched rivals’ prices to reverse the retailer’s slide, all while founder Richard Schulze was analyzing the company’s financial data in preparation for a potential takeover offer. Best Buy said today that it didn’t receive an offer from Schulze by its deadline yesterday.

“It was only one quarter, but it is hard to find too much to be negative about after their initiatives started to work,” John Tomlinson, an analyst at ITG Investment Research in New York, said today by telephone. “I can imagine the behind-the- scene talks regarding Schulze were only a distraction. It allows them to concentrate on the business and move forward.”

Best Buy rose 4.6 percent to $17.16 at the close in New York. The shares have gained about 45 percent this year, the second-best performance in the Standard & Poor’s 500 Index, trailing only Netflix Inc. (NFLX)

Sales Gain

The fourth-quarter net loss narrowed to $409 million, or $1.21 a share, from a loss of $1.82 billion, or $5.17, a year earlier, Best Buy said. Sales rose 0.2 percent to $16.7 billion, topping analysts’ average estimate of $16.3 billion and snapping a streak of two quarterly declines.

Sales by U.S. stores open at least 14 months rose 0.9 percent, after a 1.1 percent decline a year earlier. Comparable- store sales globally fell 0.8 percent, while online revenue climbed 11 percent.

“The company’s price matching policy has had a positive impact on sales without being overly onerous to margin performance,” Scot Ciccarelli, an analyst at RBC Capital Markets in New York, wrote in a note yesterday. He rates Best Buy sector perform, the equivalent of a hold.

Best Buy has said it will extend that price-matching policy to get shoppers to stop using its stores for scouting products they later buy online elsewhere, a practice known as “showrooming. The retailer also will reduce its merchandise return policy to 15 days from 30 days.

Job Cuts

Best Buy said earlier this week it eliminated 400 jobs at its headquarters as part of a reduction of about $150 million in selling, general and administrative expenses. The company said it plans additional cuts this year as Joly works toward a plan of trimming $725 million in costs.

Joly also has said he’s working to boost Best Buy’s share of U.S. online sales to 18 percent, the same as market share of its stores, from 7 percent.

Talks between Best Buy and Schulze, 72, ended after he and private-equity investors sought three board seats in exchange for acquiring a minority stake in the world’s largest consumer- electronics retailer, two people familiar with the matter said yesterday.

Financing Efforts

Schulze, who had proposed acquiring Best Buy for $24 to $26 a share in August, wasn’t able to line up debt and equity financing, said the people, who spoke on the condition of anonymity because the talks are private. Efforts by Schulze to negotiate a smaller deal with Cerberus Capital Management LP, TPG Capital and Leonard Green & Partners ended, the people said.

Schulze said today in a filing with the U.S. Securities and Exchange Commission that he approached the company with multiple offers that would have included as many as three private-equity firms investing in Best Buy and gaining board seats. The firms, which he didn’t name, would have added ‘‘significant expertise, talent and experience” to the board, he said.

Joly said today on a conference call that Best Buy decided not to accept the offers because they would have been dilutive to existing shareholders.

Joly said he communicated with Schulze multiple times in the past several months and plans to continue their discussions. He declined to say whether he’d welcome Schulze return to the board.

“He is our founder and largest shareholder,” Joly said today in a telephone interview. “Our mission is to transform the performance of the company for the benefit of all stakeholders. I look forward to working with him going forward.”

Largest Shareholder

Schulze, who founded the retailer more than 40 years ago, is Best Buy’s largest shareholder with a stake of about 20 percent. He resigned as chairman in June after a probe found he failed to inform the board about allegations the CEO at the time was having an inappropriate relationship with an employee.

As part of their standstill agreement allowing Schulze to conduct due diligence, Best Buy committed to offer Schulze two board seats if he refrained from going directly to shareholders with a proposal or if he didn’t violate standstill provisions between the two parties. Schulze said today he hasn’t decided whether to exercise that option and that the company “deserves a chance to implement its own plan.”

To contact the reporter on this story: Chris Burritt in Greensboro at cburritt@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.