BEST BUY IMPLODES: Misses Revenue, Firing 400, Closing 50 Stores
Electronics retailer Best Buy announced it would close 50 big box locations in the U.S. as it refocuses its operations around mobile.
The company said it will launch 100 new mobile locations as it retools its domestic store format.
The announcement was timed with the company's fourth quarter report, where it sharply beat analyst expectations on the bottom line. Over the final quarter of 2011, revenue grew three percent to $16.6 billion while earnings per share hit $2.47.
However, analysts polled by Bloomberg had forecast top line results of $17.15 billion, some $500 million more than the company reported. The quarter also benefitted from an extra week in the company's fiscal calendar — excluding the week would mean revenue actually fell 1.1 percent. Shares were down 6 percent in the first minutes of trading.
The company saw same-store sales decline 2.3 percent during the period, highlighting its difficulties as the U.S. economy gained steam during the first few months of 2012. Best Buy saw weakness across the board, with sales suffering in gaming, notebooks, digital imaging and televisions.
Best Buy has rapidly been trying to turn its operations around as it has seen peers CompUSA and Circuit City fail. Consumers have been using its locations as a testing ground for products before making final purchases at competitors like Amazon and Walmart.
Acknowledging the change, Best Buy Chief Executive Brian Dunn said the company would vastly alter its strategy from its long time big box format to boost returns.
"These changes will also help lower our overall cost structure," Dunn said. "We intend to invest some of these cost savings into offering new and improved customer experiences and competitive prices — which will help drive revenue. And, over time, we expect some of the savings will fall to the bottom line."
Best Buy is targeting more than $800 million in cost savings by 2015, largely expected through layoffs and the aforementioned store closings. The targets are roughly split between corporate, retail and declines in costs of goods sold. The company will layoff 400 employees within its management and support channels.
The company is betting its future largely on mobile and the commission it is paid by wireless carriers to activate services . By 2016 it hopes to have as many as 800 mobile-only locations, up from 305 today.
In November, the Richfield, Minnesota, based company bought out Carphone Warehouse's stakein it's U.S. cellular operations for $1.3 billion and said it would close its U.K. big-box locations to focus on smaller mobile outlets.
Early results from the unit have been promising. Comparable store sales improved 20 percent within Best Buy's mobile division during the fourth quarter while connections revenue increased 13 percent.
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