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Best Buy Profit Tops Estimates as Store Closings Planned

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Best Buy Profit Tops Estimates as Company Plans 50 Closings
A Best Buy employee carries Sony Playstation 3 systems while stocking shelves at a store in Emeryville, California. Photographer: David Paul Morris/Bloomberg

March 29 (Bloomberg) -- Best Buy Co., the world’s largest consumer-electronics retailer, plans to close 50 U.S. big-box stores this year to reduce costs after fourth-quarter sales trailed analysts’ estimates. The shares slid.

Revenue in the three months ended March 3 rose to $16.6 billion, Richfield, Minnesota-based Best Buy said today in a statement. The average estimate of 19 analysts surveyed by Bloomberg was $17.1 billion.

Chief Executive Officer Brian Dunn trimmed discounts after the holiday shopping season, sacrificing sales to maintain profitability, and is now accelerating efforts to spur growth. He’s closing large stores, cutting jobs and adding 100 smaller-format Best Buy Mobile stores in the U.S. in this fiscal year.

“I believe I absolutely am the right person to lead the company forward,” said Dunn, 52, in a telephone interview. “I’m really not spending a lot of time looking in my rearview mirror. I believe wholeheartedly in what we are doing. I know that we can create an experience that is second to none for our customers.”

Investor discontent may increase if Dunn can’t revive financial results in time for the upcoming holiday season, according to Matt Arnold, an analyst at Edward Jones & Co. in Des Peres, Missouri. He recommends buying Best Buy shares.

“There is discontent among investors, no doubt about that,” Arnold said in a telephone interview. “If the company doesn’t demonstrate progress, that conversation becomes more real. Investors will definitely be watching most closely come holiday time given its seasonal importance and the realistic time frame that a lot of these things won’t be fully in place before then.”

Shares Fall

Excluding some items, fourth-quarter profit was $2.47 a share. That topped the $2.15 average estimate of 24 analysts surveyed by Bloomberg.

Best Buy fell 6.9 percent to $24.77 at the close in New York. The shares have gained 6 percent this year.

The company incurred charges of $2.6 billion in the fourth quarter related to the writeoff of Best Buy Europe’s goodwill and costs from its purchase of Carphone Warehouse Group Plc’s share of their U.S. mobile-phone joint venture. As a result, Best Buy posted a net loss of $1.7 billion, or $4.89 a share, compared with net income of $651 million, or $1.62 a share, a year earlier.

The closing of the 50 big-box stores in the U.S., where Best Buy operates about 1,100, is part of planned cost cuts totaling $800 million in the next three years, including $250 million this year. The retailer closed 11 big-box stores in the U.K. last year as well as outlets in Turkey and Shanghai, Dunn said today on a conference call with analysts.

Job Cuts

Best Buy also said it is cutting about 400 jobs in its corporate and support areas and reducing the use of outside consulting services. The savings will go toward a 40 percent increase in employee training and other steps to boost growth such as opening more mobile-phone outlets, Dunn said on the call.

The retailer will expand its Best Buy Mobile stores to 600 to 800 outlets by its fiscal 2016 from 305 now as part of Dunn’s plan to generate revenue from warranties, accessories and connections between phones, tablets and other electronics.

The retailer projected full-year profit excluding some items of $3.50 a share to $3.80 a share. Analysts’ average estimate was $3.70.

(Best Buy held a conference call today to discuss results. Click BBY US <Equity> EVT <GO> for a replay.)

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

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