Best Buy's Q2 highlights challenges facing new CEO

Best Buy's Q2 highlights challenges facing new CEO

Summary: Best Buy is facing weak demand in China, U.S. and Europe and the big wait ahead of Windows 8. And then Best Buy needs to correct its long-term issues.

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Best Buy's fiscal second quarter results illustrated the laundry list of issues new CEO and turnaround specialist Hubert Joly will face.

Here's the short version:

  • Best Buy saw both earnings and revenue fall short of Wall Street expectations.
  • The company declined to give an outlook for the rest of its fiscal year citing Joly's arrival and market uncertainties.
  • Best Buy's cost structure is too high.
  • Demand in China and Europe has been weak and the U.S. is soft.
  • Technology buyers are holding off on purchases ahead of a bevy of product launches ranging from the latest iPhones and iPad from Apple and Windows 8 from Microsoft.

And that list was just this quarter. The long-term issue for Best Buy is whether it can meld multichannel retailing across online, physical, mobile and social.

Also see: What can Best Buy learn from T.G.I. Friday's?

Simply put, Joly has his work cut out.

As for Best Buy's results, the company reported fiscal second quarter earnings of $12 million, or 4 cents a share, on revenue of $10.57 billion, down 3 percent from a year ago. Same store sales were down 3.2 percent.

Non-GAAP earnings for the second quarter were 20 cents a share. Wall Street was expecting earnings of 31 cents a share.

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On a conference call with analysts, interim CEO Mike Mikan, who is yielding to Joly, made the following points:

Markets in China and Europe are facing enormous difficulties and that has had a negative impact on you us. In the U.S., economic conditions are soft and will probably remain so for the indefinite future. Consumers remain very cautious and sales in the industry may be dampened at the moment by those who are holding back on spending as they await some highly anticipated new technology releases. Like virtually every other competitor in the consumer electronics sector, Best Buy's second quarter reflects these realities.

And.

Best Buy clearly remains in turnaround which will take time to come out of. Given reality, and the fact that we've just welcomed a new CEO to the Company, we are suspending Best Buy's share repurchases and earnings guidance for fiscal year 2013.

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CFO Jim Muehlbauer said that Best Buy was rejiggering its cost structure and that its issues weren't completely company specific. He said:

From a revenue perspective, consumer demand in several large categories continues to be challenged. ... I do want to highlight specifically in what we've talked about in the sales trends and margin trends in our business are not things that we see unique to Best Buy. We certainly see them being driven by the same industry mix factors that are happening in the business and basically being driven by what consumers are currently interested in buying in key categories, whether it's smartphones, tablets and current notebook space. It's difficult to predict where consumers are actually going to go during that period, especially with all through releases that are coming out.

The bottom line for Best Buy right now is that it's holding out for multiple items to fall into place. To wit:

  • Best Buy has done prework for Joly's arrival, but the turnaround specialist needs to move fast.
  • Notebook sales were weak ahead of the "important launch of Windows 8. Muehlbauer said that Best Buy is positioning itself for Windows 8.
  • China and Europe economies are dicey.
  • Mobile outperforms.
  • And there's no evidence that the typical tech buying cycle is changing so far.

 

Topics: Tech Industry, Mobility

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5 comments
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  • Geez, that projection looks bleak.

    Not sure what they can do to wait out this recession except cost cutting. People have wised up to the warranty scam so they need another pure profit engine.
    droidfromsd
    • didn't the latest recession end 2 years ago?

      3?

      Actually, as real wages still stagnate and drop, there will be no real recovery. The gravy train of "jobless recovery" and offshoring and automation can only go so far before taxpayer-funded subsidy, bailouts, and related entitlements are doled out...
      HypnoToad72
  • One Part of the Solution

    ...should be to partner with Microsoft to have them place a one-person microstore in the Best Buy stores that demonstrates the Surface units they're only selling at their stores and online. Ordering could be online, but Best Buy will have people coming to their stores, and Microsoft gives people a chance to touch the Surfaces before making a purchase decision. Win-win in my view.
    WebSiteManager
    • So wait...

      Best Buy is supposed to have sales people in their stores demonstrating aproduct that they cannot even buy in the store?

      LOL... are you trying to help turn the company around, or bankrup it faster?
      dsf3g
      • Guess Why People do Promotions in their Stores

        Why does the local furniture powerhouse sell zoo memberships? Because it brings people into the store. They'll be buying accessories, and they may even pick up the computer they can take home as opposed to the one they have to wait on. It's done all over the place, whether or not you're aware of it.
        WebSiteManager