Best Buy Co., the consumer-electronics retailer being evaluated for a takeover by its founder, posted a $10 million fiscal third-quarter net loss as sales at established stores fell more than expected.
The loss in the quarter ended Nov. 3 was 3 cents a share, compared with profit of $156 million, or 42 cents, a year ago, Richfield, Minnesota-based Best Buy said today in a statement. Excluding some items, profit was 3 cents a share. The average of 16 analysts’ estimates compiled by Bloomberg was 12 cents.
Chief Executive Officer Hubert Joly is working to improve customer service as customers defect to Amazon.com Inc. and Wal-Mart Stores Inc., all while founder Richard Schulze and private-equity firms evaluate the chain for a possible buyout. Best Buy said last month that third-quarter results would be “significantly” below last year’s. Same-store sales fell 4.3 percent, more than the 3.3 percent drop estimated by analysts.
“They said they were going to produce lousy results and they didn’t disappoint -- they produced lousy results,” Erik Gordon, a business and law professor at the University of Michigan, said today by telephone from Ann Arbor. “It gives the Schulze gang ammo to say Best Buy is lost.”
Best Buy fell 13 percent to $11.96 at the close in New York. The shares have tumbled 49 percent this year.
Investors’ concern about Best Buy is reflected in its surging three-month implied volatility, an indicator of how much options traders are willing to pay to protect against a drop in the stock price or bet on a jump. Best Buy’s implied volatility of about 73 is the highest of any stock in the Standard & Poor’s 500 Index and is about five times the average.
Joly said in an interview last week that he plans to boost Best Buy’s share of U.S. online sales to 18 percent, the market share of its stores, from 7 percent. Online sales in the quarter climbed more than 10 percent to $431 million, Best Buy said. Total revenue fell 3.5 percent to $10.75 billion. Analysts’ estimated $10.74 billion, on average.
Best Buy lacks the connection to consumers enjoyed by Amazon and Apple Inc., Joly, 53, said last week.
“Best Buy has lost a little bit of this,” he said in an interview at Bloomberg News headquarters in New York. “We need to reinvent our brand identity.”
Schulze, 71, is working with three private-equity firms, including Cerberus Capital Management LP, on a takeover of the electronics chain as his deadline to review the company’s finances approaches, people familiar with the matter have said.
Schulze reached an agreement to conduct due diligence on the retailer in August and now is asking for an extra 30 days, said the people, who asked not to be named because the process is private.
TPG Capital and Leonard Green & Partners LP also are working with Best Buy’s former chairman on arranging financing, they said. The three private-equity firms are working separately for now, said one of these people, though they could work together eventually on a final bid.
Schulze and his allies pressed for the 30-day extension, which would take them into late December, so they could see how Best Buy performs during the holidays before they agreed to fund what would be one of the largest buyouts in years, said one of these people. The retailer lost $1.23 billion in its most recent fiscal year.
In the third quarter, lower U.S. comparable-store sales of televisions, notebook computers, gaming and digital-imaging devices muted gains by mobile phones, appliances and tablets in stores open at least 14 months. Total comparable-store sales have now declined in nine of the past 10 quarters.
Higher spending on training and compensation for sales employees and transition costs for executives boosted U.S. selling, general and administrative expenses. Total selling, general and administrative expenses rose 2.7 percent to $2.53 billion. Gross profit narrowed to 24 percent of sales from 25.6 percent.
“Joly can’t control whether people are going to buy big flat-panel TVs, but getting control of expenses is something a CEO should be able to do,” Gordon said.
The extra spending on training, incentive bonuses for store employees and matching rivals’ online prices make Best Buy ready for the holidays, Joly told analysts today on a conference call. He said the retailer’s recovery will be a “hard road.”