Best Buy Plunges 8% on Q4 Results, Store Closures

Struggling electronics retailer Best Buy

released its fiscal Q4 earnings results prior to the opening bell on Thursday. The company reported a GAAP net loss of $1.7 billion or $4.89 per share, compared to income of $651 million or $1.62 per share, in last year's fourth quarter. On an adjusted basis, which is comparable to analysts' consensus, the company reported earnings of $871 million or $2.47 per share, versus $798 million or $1.98 per share, in the year ago period. This came in ahead of analysts' consensus EPS estimates of $2.16. Revenue for the quarter came in at $16.63 billion versus $16.08 billion in last year's corresponding quarter. This missed analysts' consensus revenue estimates of $17.20 billion. For Q4, comparable store sales fell 2.4 percent. Looking ahead, Best Buy sees fiscal 2013 GAAP earnings per share between $2.85 to $3.25. On an adjusted basis, BBY expects EPS between $3.50 to $3.80 for the year. Revenues are anticipated to be between $50 and $51 billion which implies a comparable store sales decline of 2 to 4 percent. Wall Street analysts are currently projecting that BBY will report EPS of $3.70 on revenues of $51.88 billion for fiscal 2013. Best Buy also announced that it will be closing 50 superstores and is shifting its focus to smaller stores which sell mobile electronics. The company plans on opening 100 U.S. Best Buy Mobile small format stand-alone stores in fiscal 2013. The plans are part of a cost-cutting program which seeks to reduce expenses by $800 million by 2015. The plan calls for $250 million in cuts for fiscal 2013. In addition to the big-box store closures and a shifting focus on smaller Mobile stores, the company announced it would be cutting headcount at its Minneapolis, MN headquarters. "In order to help make technology work for every one of our customers and transform our business as the consumer electronics industry continues to evolve, we are taking major actions to improve our operating performance,” said Brian J. Dunn, CEO of Best Buy. “As part of our multi-channel strategy, we intend to strengthen our portfolio of store formats and footprints — closing some big box stores, modifying others to our enhanced Connected Store format, and adding Best Buy Mobile stand-alone locations — all to provide a better shopping environment for our customers across multiple channels while increasing points of presence, and to improve performance and profitability." In addressing the cost-cutting plan, Dunn added, "In order to be more efficient and align the company with the opportunities that will provide the greatest returns, the company is taking significant actions to lower its cost base (via) $800 million in cost reductions by fiscal 2015; including approximately $250 million in fiscal 2013." While Wall Street analysts believe that the company is taking the proper measures, today's announcement underlies the company's operating problems. Revenues and same store sales were disappointing, and it looks like the company's top-line growth has peaked and could begin to contract. For example, BBY reported revenues of $50.3 billion in fiscal 2011 which compares to its guidance of $50 to $51 billion in revenues for fiscal 2013. The bottom line is that Best Buy is not headed in the right direction and its business remains under pressure. Cost-cutting your way to profitability is not the sign of a dynamic business. This is evidenced in the stock performance, with shares languishing for years. In fact, BBY has now lost more than 50% over the last 5 years. During the last 52-weeks, the stock has shed more than 15%, and on Thursday it has fallen roughly 7% to $24.71. Unfortunately, this company is starting to look more and more like a dinosaur.