Best Buy Aims for 15% Return on Capital in Joly Turnaround
Best Buy Co. (BBY), the electronics retailer that had a $1.23 billion loss in its last fiscal year, set a goal of as much as a 15 percent return on invested capital as Chief Executive Officer Hubert Joly revamps the company.
The long-term goal for operating margin will be 5 percent to 6 percent, Richfield, Minnesota-based Best Buy said today in a statement. The company said it will focus in the short term on stabilizing and then increasing its comparable-store sales and operating margin.
Joly, who took charge in September, told analysts and investors today Best Buy’s business and its stock performance has been unsatisfactory in recent years. The retailer sees the opportunity to boost annual operating income by more than $1.6 billion with store improvements and cost cuts.
“It is really retail 101,” said Shawn Score, a 27-year Best Buy veteran who was promoted by Joly last month to run the company’s U.S. retail operations.
Best Buy fell less than 1 percent to $15.70 at the close in New York. The shares have declined 33 percent this year.
Doing a better job assigning more employees to busy days and other operational steps to improve the rate at which shoppers actually buy in Best Buy stores may generate an additional $450 million in operating profit, the retailer said. The company projects cutting $725 million from costs of goods sold and selling, general and administrative expenses.
Best Buy is spending more to train employees, which Joly said is critical to reversing declining same-store sales and sinking operating margin. The retailer is also reducing store space to trim expenses.
The company said it is improving its website to encourage more spending by visitors, some of whom complain about out-of- stock items, a lack of product information and prices being too high. Store employees are authorized to match online rivals’ prices during the holidays, Joly said.
The company earlier this week named former William-Sonoma Inc. executive Sharon McCollam as its chief financial officer to help oversee the turnaround.
Best Buy has resisted recent buyout overtures from founder Richard Schulze, who resigned as chairman in June. Schulze, 71, offered to take the company private at $24 to $26 a share two months later and has since reached an agreement with the company on conducting due diligence for a possible deal.
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