Breaking News

Tweet TWEET

Best Buy Profit Gains as Joly Trims Costs

Aug. 20 (Bloomberg) -- Bloomberg's Scarlet Fu examines the success of Best Buy CEO Hubert Joly as the electronics retailer posted its largest profit gain in more than two years following strategic cost cuts. She speaks on Bloomberg Television's "Bloomberg Surveillance."

Best Buy Co. (BBY) rose after the world’s largest consumer-electronics retailer posted its biggest quarterly profit in more than two years as Chief Executive Officer Hubert Joly trimmed costs and cut prices to spur sales.

The shares jumped 13 percent to $34.80 at the close in New York, the biggest gain since April 4 and the highest closing price since Feb. 7, 2011. Shares of Best Buy, based in Richfield, Minnesota, have more than doubled this year, trailing only Netflix Inc. (NFLX) for the second-best performance in the Standard & Poor’s 500 Index.

Joly made permanent a holiday policy of matching Internet rivals’ prices in an attempt to regain sales from Amazon.com Inc. He also has slashed expenses and cut 400 jobs at the retailer’s headquarters this year. Net income in the quarter ended Aug. 3 increased to $266 million, or 77 cents a share, from $12 million, or 4 cents, a year earlier, Best Buy said today in a statement. The profit was the retailer’s largest since the quarter ended in February 2011.

“Bears were concerned that lower prices would eat away profit,” Brian Yarbrough, an Edward Jones & Co. analyst in Des Peres, Missouri, said today by telephone. He rates Best Buy shares hold. “It’s not happening at the rapid pace that they had thought.”

Photographer: Daniel Acker/Bloomberg

The company said it cut $65 million in annual costs in the quarter. Close

The company said it cut $65 million in annual costs in the quarter.

Close
Open
Photographer: Daniel Acker/Bloomberg

The company said it cut $65 million in annual costs in the quarter.

Best Buy’s gross margin, the portion of sales left after subtracting the cost of good sold, expanded to 26.5 percent in the quarter, beating analysts’ 23.3 percent estimate.

Sales Beat

Sales fell 0.4 percent to $9.3 billion, topping analysts’ $9.11 billion average estimate. Comparable-store sales slid 0.6 percent, less than the 3.3 percent drop a year earlier and better than analysts’ average estimate for a 0.9 percent decline.

Best Buy’s shares are now about 30 percent higher than the potential $26-a-share buyout founder Richard Schulze proposed in August last year.

The retailer’s board later allowed Schulze to conduct due diligence in an attempt to arrange a fully financed proposal. The founder ultimately was unable to line up debt and equity funding by a February deadline, according to people familiar with the matter. Schulze, 72, then struck an agreement in which he rejoined the company as chairman emeritus and nominated two directors to the board.

Best Buy said today it cut $65 million in annual costs in the quarter. Legal settlements boosted profit by about $30 million in this year’s second quarter.

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

Press spacebar to pause and continue. Press esc to stop.

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.