Best Buy 2Q profit drops 90%

By Anne D'Innocenzio

Associated Press

Published: Tuesday, Aug. 21 2012 9:00 p.m. MDT

Customers walk in and out of Best Buy in Danvers, Mass., in June. Restructuring has hurt the company.

Associated Press

NEW YORK — The news just keeps getting worse at Best Buy each day.

To top off an already eventful several days for the nation's largest consumer electronics retailer, Best Buy Co. withdrew its full-year earnings guidance Tuesday after reporting a 90-percent drop in net income during the second quarter, dragged down by restructuring charges and weak sales.

The poor report comes a day after Best Buy named Hubert Joly, former CEO of the Carlson travel company and turnaround expert, as its new CEO and president. It was expected that Best Buy would pick someone with retail experience, and Wall Street didn't respond well, sending Best Buy shares fell 10 percent.

And before that, the board and Richard Schulze over the weekend waged a public fight over the co-founder and former chairman's plan to take the company private.

Best Buy has been engulfed in mounting controversy since April when former CEO Brian Dunn resigned amid a company investigation into an "improper relationship" with a 29-year-old female employee. Schulze resigned as chairman a month later after the probe found that he knew about the relationship and failed to alert the board or human resources.

The series of bad news that has followed comes as Best Buy fights to reverse a decline in its business due to a weak global economy and consumers' changing shopping habits. Best Buy's stores are becoming unprofitable as customers increasingly use them to browse for electronics, then buy them cheaper online or elsewhere. On top of that, shoppers are no longer snapping up big TVs and computers at a fast clip like they used to, instead opting for smaller gadgets like cell phones and tablets.

In fact, during the latest quarter, U.S. sales growth in tablets, mobile phones, appliances and e-readers helped offset declines in gaming, digital imaging, televisions and notebook computers. Best Buy said the international business was dragged down by lower revenue in China, Canada and increased competition in Europe.

Overall, Best Buy earned $12 million, or 4 cents per share, in the quarter ended Aug. 4. That compares with $128 million, or 34 cents per share. Revenue declined nearly 3 percent to $10.55 billion. Adjusted earnings were 20 cents per share, missing the 31 cents per share on revenue of $10.65 billion analysts had expected.

Revenue at stores open at least 14 months fell 3.2 percent for the entire business, including a 1.6 percent drop in its domestic business and an 8.2 percent decline in its international division. Analysts had expected a 2.6 percent decline for the total business.

Brian Sozzi, chief equities analyst for research firm NBG Productions, described the latest quarter's results as "ugly." He said that Best Buy management needs to turn around things quickly.

"Every day, the (business) model is changing, and it goes against Best Buy," he said.

And things don't seem to be getting any better for the company. Best Buy had said in May that it expected full-year earnings guidance to be in the range of $3.50 to $3.80, excluding restructuring charges. But the chain said Tuesday it was withdrawing its outlook to give Joly more flexibility and the opportunity to make decisions that will address broader challenges ahead.

Best Buy is counting on Joly to turn around the company. Joly, who is expected to take over as CEO in September, succeeds Mike Mikan, a board member who has served as interim CEO since April.

Mikan on Tuesday acknowledged to investors the challenges Best Buy faces. But he said that Joly, who has a track record of successfully turning around companies in the media, technology and service sectors, is up to the task.

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