(Reuters) – Best Buy Co reported weaker-than-expected quarterly results and suspended its profit outlook and share buybacks for the year, citing lower expectations for industrywide sales and uncertainty about key product introductions.
The news on Tuesday dragged the company’s shares down and highlighted the challenges newly named Chief Executive Officer Hubert Joly faces in turning around the world’s largest consumer electronics chain.
“Best Buy clearly remains in turnaround, which will take time to come out of,” said Mike Mikan, who is the interim CEO till Joly takes over.
While Best Buy is not alone in struggling with a consumer electronics market hurt by a dearth of compelling new products, its troubles have been exacerbated by its slow response to a shift by consumers to buying online and by the abrupt exit of CEO Brian Dunn due to an ethics probe.
The company is also fending off takeover interest from founder and largest shareholder Richard Schulze, who resigned as a director after an internal probe found that he did not tell the board of allegations that Dunn was having an inappropriate relationship with a female employee.
Best Buy said it would not discuss details of its turnaround plan on Tuesday as that “would not be fair” to Joly, who plans to assume his new position in September. The company said it had lowered its fiscal-year earnings outlook, but did not give a figure.
Best Buy shares were down 3 percent at $17.61 in morning trading after hitting a nine-year low of $16.25 earlier in the session.
The stock also fell on Monday following the appointment of Joly, who formerly headed hospitality and travel company Carlson and lacks retail experience, and the deterioration over the weekend of takeover talks with Schulze.
The disappointing earnings add credence to Schulze’s argument that “value is eroding every day,” said BB&T Capital Markets analyst Anthony Chukumba. He added that Joly should announce details of a turnaround plan “sooner rather than later.”
Critics have complained that Best Buy has become a showroom for Amazon.com Inc and other online retailers, with shoppers going to its stores to check out electronics like high-definition televisions and then buying them elsewhere for less.
Ending the practice of showrooming is a top priority, Best Buy said in June.
The company has also said it is working to improve its online business and wants to reduce retail square footage further than a plan, announced in March, to close 50 of its 1,100 large U.S. stores. Many investors were looking for even deeper cuts to turn around the chain.
Sales at stores open at least 14 months fell 3.2 percent in the second quarter ended on August 4, the company’s eighth decline in the last nine quarters.
Same-store sales were down 1.6 percent in the United States and 8.2 percent internationally.
Janney Capital Markets analyst David Strasser said he was expecting only a 3 percent drop for the international business.
“China was even worse than Europe,” Strasser said.
Best Buy said on a conference call that markets in China and Europe were facing “enormous difficulties.”
It attributed the results in China to lower consumer spending as growth in the nation’s economy slows, weakness in the housing market and the expiration of government-sponsored rebate programs for appliances and other products.
Net income fell to $12 million, or 4 cents a share, from $150 million, or 39 cents a share, a year earlier.
Excluding previously announced restructuring charges, earnings were 20 cents a share. Analysts on average were expecting 31 cents, according to Thomson Reuters I/B/E/S.
Sales fell 3 percent to $10.55 billion, while analysts had forecast $10.63 billion.
(By Dhanya Skariachan; additional reporting by Martinne Geller; Editing by Maureen Bavdek and Lisa Von Ahn)
Image Credit: Best Buy