Best Buy's Forecast Raises Concerns About 2016by
Lack of exciting new products will weight on revenue, CEO says
Retailer says it can beat $400 million expense-reduction plan
Best Buy Co. is pledging to keep a lid on costs as it copes with another year of sluggish electronics demand.
Revenue in the U.S. will be little changed this year and will decline in the first quarter, the Richfield, Minnesota-based company said Thursday in a statement. Analysts estimated full-year sales would decline less than 1 percent to about $39.4 billion. The company once again cited a lack of innovation from its suppliers, especially in mobile phones.
Chief Executive Officer Hubert Joly has led an uneven turnaround of the electronics chain since taking the reins more than three years ago. While he has been lauded for cutting costs and selling off foreign divisions, the retailer has yet to return to steady sales growth. Joly said today that the company’s revenue is partly dependent on having new products to entice consumers, and that sales this year would be flat in the absence of strong mobile-phone offerings.
With that in mind, the company may be able to cut more costs than the $400 million in expenses it’s already vowed to trim over three years, Chief Financial Officer Sharon McCollam said. Many of the opportunities include fixing processes and systems cobbled together during the company’s growth years, when it was opening 50 stores a year, she said.
“That $400 million is the bottom of what we believe is possible,” McCollam said on the call. “We continue to believe there is substantially more opportunity there.”
Best Buy erased earlier declines to gain 2.4 percent to $32.24 at the close in New York on Thursday. The shares have advanced 5.9 percent this year.
Sales in the current quarter will be as much as $8.35 billion, while profit may top out at 35 cents a share, excluding some items, Best Buy said. Analysts estimated revenue of $8.45 billion and earnings of 39 cents a share, on average.
Net income in the three months through Jan. 30 slid 7.7 percent to $479 million, or $1.40 a share, from $519 million, or $1.46, a year earlier. Profit was $1.53 a share, excluding some items. Analysts projected $1.39. Sales fell 4.1 percent to $13.6 billion, matching analysts’ estimates.
Even with earnings declining, the company made good on its promises to keep returning cash to shareholders. The chain announced a special dividend of 45 cents a share, a new $1 billion buyback program and raised its quarterly dividend 22 percent to 28 cents. These initiatives will be funded with the company’s own cash and future cash flow, Best Buy said, emphasizing hat it has plenty of liquidity.
Best Buy and other retailers entered the holiday season warning that the electronics market in the U.S. was weak. Even so, key categories tracked by research firm NPD Group Inc. fared even worse than expected, Best Buy has said.
Same-store sales fell 1.7 percent last quarter. Analysts expected a decline of 1.4 percent. The company had already reported the revenue by that measure dropped 1.2 percent in November and December.
Joly has said innovation drives the electronics market and that some brands, like GoPro, didn’t have new products this holiday season. Emerging categories such as drones, virtual reality and even clothing infused with technology may help the market, he said.
“We’re excited about the technology waves that are coming, above and beyond the softness in phones,” Joly said.