Best Buy Exits China as CEO Emphasizes U.S. Sales Revival

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Best Buy Co. is exiting China as part of Chief Executive Officer Hubert Joly’s plan to focus on reviving the retailer’s U.S. stores.

Jiayuan Group, a China-based real estate firm, will acquire Best Buy’s Five Star business and its 184 locations in China, the company said today in a statement. The world’s largest electronics chain declined to provide terms, while also saying it didn’t expect the deal to have a material impact on results or cash flow.

Joly, who joined Best Buy as CEO in September 2012, is focusing on improving results in the U.S., which now represents about 85 percent of sales. Earlier this year, he sold Best Buy’s 50 percent stake in Carphone Warehouse Group Plc, a British electronics chain, and mindSHIFT Technologies Inc., a technology provider to small businesses.

“This is good news,” David Schick, an analyst at Stifel Financial Corp., wrote in a note to clients. “Five Star was both a distraction for management from core North America operations and, at some level, a drag on total company results.”

Best Buy’s international stores have lagged behind the U.S. locations for some time. In the quarter ended Nov. 1, same-store sales -- a closely watched data point -- from locations outside the U.S. fell 3 percent. Meanwhile U.S. revenue by that measure rose 3.2 percent, helping the company post a surprise gain in total sales.

That performance boosted the stock the most in more than a year and gave credence to Joly’s ability to increase revenue after four straight declines in annual same-store sales.

Shares Advance

The shares gained 0.1 percent to $36.08 at the close in New York. The stock has declined 9.5 percent this year, compared with a 12 percent gain for the Standard & Poor’s 500 Index.

Best Buy bought a majority stake in Five Star for about $180 million in 2006. In the previous year, Five Star’s 136 stores generated revenue of about $700 million. The Richfield, Minnesota-based chain later bought the rest of the firm.

At that time, Best Buy was using acquisitions to enter international markets and by 2010 it had more than 4,000 locations. After the sale of the Five Star division, Best Buy will have about 1,800 stores, including just 280 outside the U.S. in Mexico and Canada.

“The sale of Five Star does not suggest any similar action in Canada or Mexico,” Joly said in the statement. “Instead, it allows us to focus even more on our North American business.”

(Updates with closing share price in seventh paragraph.)
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