Best Buy U.S. Sales Halt Decline, Helping Schulze’s Bid
Best Buy Co.’s (BBY) sales stabilized in the U.S. during the holiday season after three quarters of declines, bolstering founder Richard Schulze’s bid to take over the consumer-electronics retailer. The shares climbed.
Sales at domestic stores open at least 14 months were unchanged in the nine weeks ended Jan. 5, the Richfield, Minnesota-based company said today in a statement. Global comparable sales fell 1.4 percent, less than the 2 percent decline projected by analysts Mike Baker at Deutsche Bank AG and Scott Tilghman of B. Riley & Co.
“The results make it more likely that Schulze can put a deal on the table with domestic same-store sales stable,” Erik Gordon, a business and law professor at the University of Michigan, said today by telephone from Ann Arbor. “It also gives the board greater bargaining power now that they’ve got the first glimmer of a turnaround. It was not the disaster that people were fearing.”
Best Buy rose 16 percent to $14.21 at the close in New York, the biggest gain since Dec. 16, 2008. The shares dropped in four of the past five years, including a decline of 49 percent in 2012.
The company cut its free cash flow forecast for fiscal 2013 because it bought and paid for inventory sooner than it anticipated. Demand also increased for fast-selling products such as mobile phones and tablet computers, which carried shorter payment terms.
Free cash flow, which Best Buy defines as cash from operations minus additions to property and equipment, will be about $500 million, down from a November projection of $850 million to $1.05 billion.
“It sounds like an accounting shift,” Gordon said. “There’s also a chance that vendors just want to get paid more quickly.”
Best Buy said in the statement that suppliers haven’t altered their terms with the company.
“There have been no changes to vendor terms,” Matt Furman, a company spokesman, said today by telephone.
It would be “hard to believe” that vendors are changing payment terms on Best Buy, Scot Ciccarelli, an analyst at RBC Capital Markets in New York, told clients in a note today.
“There is really no other place to go for the vendors to achieve volume, except Amazon, Wal-Mart, etc., and we suspect they would much prefer to sell through Best Buy,” said Ciccarelli, who rates Best Buy the equivalent of hold.
Schulze, the retailer’s former chairman, proposed offering $24 to $26 a share for Best Buy in August and later that month reached an agreement that let him conduct due diligence and present a fully financed offer within 60 days.
Best Buy last month gave Schulze more time to study the company and arrange financing to take it private. He can make an offer between Feb. 1 and Feb. 28, allowing him to include full- year results in his due diligence, the retailer said in a statement Dec. 14. The board then has 30 days to review and decide on an offer.
Schulze has been working with three private-equity firms, including Cerberus Capital Management LP, on a takeover of the electronics chain he founded more than four decades ago, people familiar with the matter have said.
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