Wednesday, December 17, 2008

Best Buy 3Q profit sinks, company offers buyouts

Best Buy 3Q profit sinks, company offers buyouts

Best Buy's 3rd-quarter profit sinks, company offers buyouts to most corporate staff

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Best Buy Co. Inc. offered voluntary severance packages to virtually all its 4,000 corporate employees Tuesday as the nation's largest consumer electronics chain announced its third-quarter profit skidded 77 percent.

The results -- which beat Wall Street's lowered expectations -- came in what the company called the "most challenging consumer environment" in its history, an environment so rough Best Buy hasn't been able to take full advantage of its largest rival's bankruptcy.

"We believe that the environment for consumer spending is likely to get worse before it gets better," said Chief Executive Brad Anderson. "In fact, we can foresee a period in which consumers may significantly shift their spending behaviors, which could have a dramatic impact on retailing."

Tuesday's news comes about a month after Circuit City Stores Inc. filed for Chapter 11 bankruptcy protection because of slowing sales and mounting debt.

"(Best Buy) may be a bellwether here," Stifel Nicolaus & Co. analyst David Schick told investors in a research note Tuesday. "We want to hear retailers talk about the consumer slowdown in a historic sense and match the slowdown with historic changes to the model."

But he added some of his concerns were alleviated by the company's "bold management moves" and weak competitors.

Best Buy shares climbed $4.21, or 17.9 percent, to close at $27.68.

Data released by MasterCard SpendingPulse said total consumer electronic spending declined approximately 25 percent last month. And, as wary shoppers tamped down discretionary spending, retailers boosted discounts to keep merchandise moving, often at the expense of profits.

Best Buy's same store sales -- an important retail industry metric -- fell 5.3 percent from 2007 for the quarter ending Nov. 29. Same-store sales, which worsened every month in the period, are considered a key indicator of a retailer's health because they measure sales at existing stores rather than newly opened ones.

The company earned $52 million, or 13 cents per share, down from last year's profit of $228 million, or 53 cents per share.

Excluding a charge related to a decline in market value of its 2.9 percent stake in U.K. company Carphone Warehouse Group PLC, the company's net income came to 35 cents per share.

Revenue climbed 16 percent to $11.5 billion, from $9.93 billion last year.

Wall Street analysts expected worse -- earnings per share of 24 cents on revenue of $11.09 billion, excluding one-time items.

The results were boosted by strong Thanksgiving weekend sales of electronics.

The company's stock regained much of the ground it lost in recent months, on news of the severance offers, not available to top executives, and the announcement that Best Buy plans to cut capital spending 50 percent in 2009.

The chain also plans to open "significantly" fewer stores in the U.S., Canada and China next year and said it may have to lay off workers if not enough corporate employees accept the severance offers. The company had about 150,000 full-time, part-time and seasonal workers as of April, according to a regulatory filing. A spokeswoman said the company was unsure how many workers would accept the company's buyout offer.

Also Tuesday, Best Buy reiterated its full-year guidance for earnings of $2.30 to $2.90 per share, excluding the investment charge, and expects same-store sales will fall 1 percent to 5 percent for the year. Analysts expect earnings of $2.51 per share.

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