Best Buy tops Street as Q4 loss narrows; buyout talks with founder Schulze end
Minneapolis — Best Buy Co. said that its loss narrowed in the fourth quarter, helped by improved U.S. sales. In a separate release, the company said that the deadline passed without it having received an acquisition offer from its co-founder, Richard Schulze, who had been considering making a bid for the chain.
“The company received no such offer and will continue to focus on its transformation for the benefit of all of its stakeholders,” Best Buy said in a statement.
A report by Reuters said that Best Buy spurned a $1 billion minority investment proposal by Schulze’s three private equity partners: Leonard Green Partners, Cerberus Capital Management and TPG Capital. Under the proposal, the three firms would have each received a seat on the board, the report said.
Best Buy reported a loss (after paying preferred dividends) of $409 million for the three months ended Feb. 2. The loss was less than Wall Street had expected, and its shares rose more than 5% in premarket trading on Friday.
Revenue was nearly flat at a better-than-expected $16.71 billion, from $16.67 billion last year. Analysts expected $16.29 billion.
“These results were driven by a compelling assortment of new products in key growth categories, increased “blue-shirt” training and higher customer engagement in our retail stores, and impactful ‘traffic-generating’ marketing activities," said Hubert Joly, Best Buy president and CEO.
Same-store sales at U.S. stores in the quarter rose 0.9%, boosted by performance from Best Buy’s freestanding mobile stores. International revenue in stores open at least one year fell 6.6% on weak results in Canada and China.
For its current fiscal year, Joly said the chain would pursue six priorities: accelerating online growth; escalating the multichannel customer experience; increasing revenue and gross profit per square foot through enhanced store space optimization and merchandising; driving down cost of goods sold through supply chain efficiencies; continuing to gradually optimize the U.S. real estate portfolio; and further reducing SG&A costs.
“In addition, we will focus on driving operational improvements in our International business,” Joly said.
To support its initiatives, the chain expects capital spending be in the range of $700 to $800 million and incremental SG&A investments in the range of $150 to $200 million. These investments will be principally in the areas of online, mobile and the multichannel customer experience, in addition to non-recurring costs associated with the insourcing of IT, which is expected to be completed this year.
For the year, Best Buy reported a loss of $249 million, compared with a loss of $1.32 billion in the prior year. Revenue edged down less than 1% to $49.62 billion from $50.04 billion.
Best Buy’s not singing the blues
Fourth quarter same store sales inched up 0.9% at Best Buy and profits were better than expected as the company fared better during the holiday season than many thought.
Fourth quarter revenue increased slightly to $16.7 billion for the 13 week period ended February 2, and the company reported adjusted earnings per share of $1.64 compared to $2.18 the prior year. The company also said adjusted free cash flow totaled $965 million thanks to aggressive inventory reductions.
"These results were driven by a compelling assortment of new products in key growth categories, increased ‘blue-shirt’ training and higher customer engagement in our retail stores, and impactful ‘traffic-generating’ marketing activities," said Best Buy president and CEO Hubert Joly. "It was a quarter that was driven, not given and we are encouraged by the intensity, collaboration and momentum that was generated by both our front line and corporate teams as we began to execute against our Renew Blue initiatives."
While the meager comp increase was better than expected heading into the holiday season, it comes against a weak prior year comparison when comps declined 1.1%. Accordingly, Joly noted that the company is intently focused on stabilizing and improving comps and increasing profitability across its global businesses during the current year.
"We recognize, however, that fiscal 2014 is a year of transition and that further investment will be required to advance our Renew Blue transformation," Joly said.
Renew Blue is the name the company gave to six strategic priorities that include: accelerating online growth; escalating the multi-channel customer experience; increasing revenue and gross profit per square foot through enhanced store space optimization and merchandising; driving down cost of goods sold through supply chain efficiencies; continuing to gradually optimize the U.S. real estate portfolio; and further reducing expenses.
The company didn’t provide first quarter or full year financial guidance, but did say directionally it expects there to be significant pressure during the first quarter. CFO Sharon McCollam said despite the financial pressures Best Buy is experiencing inspiring energy around its Renew Blue strategy.
"Our fourth quarter results and the actions that we have taken since then to begin rationalizing our infrastructure, have given the organization something that they have not had in a long time – pride in the outcome and belief in what is possible," McCollam said.
Apparel retailer reduces 2013 growth plan
Following a year of rapid expansion, specialty apparel retailer Body Central said it will pare new store growth to 25 units in 2013 from 39 openings last year.
Body Central opened 13 stores during the fourth quarter to end the year with 276 units operating under the Body Central and Body Shop banners which, according to the company, target women in their late teens and twenties from diverse cultural backgrounds who seek the latest fashions and a flattering fit.
The reduced pace of growth was announced in conjunction with fourth quarter financial results that saw sales increase 0.3% to $81 million, however same store sales declined 11.6% and profits tumbled. Net income was $2.4 million, or 15 cents a share, in the fourth quarter ended December 29, compared to net income of $6.1 million, or 38 cents a share during the fourth quarter the prior year.
To remedy the situation, Body Central a few days earlier announced a major restructuring of its merchandising group that involved the departure of head merchant Beth Angelo and four new hires.
Angelo’s responsibilities will be assumed by Andrea Jackson who joined the company as SVP/GMM and will be responsible for merchandising in all Body Central Stores. She most recently served as a DMM at Sears where she was responsible for juniors’ apparel and women’s dresses and outerwear. She previously spent several years in the buying and merchandising departments of Wet Seal and at Macy’s.
Other new hires included the appointment of Patti Simigran as SVP of e-commerce and direct merchandising, Debbie Martin as SVP of trend and design and Grant Simmons as vp of e-commerce marketing.
"These four leaders bring diverse and in-depth retailing knowledge in the areas of merchandising, branding, marketing, and strategic planning to Body Central," said CEO Brian Woolf.
Simigran joined Body Central from Maurice’s, where she served as chief merchandising office. Prior to that, she was chief merchandising officer at Tabi International, a leading Canadian specialty retailer. She also held roles at David’s Bridal, Sears Holdings, and Land’s End.
Martin joined Body Central from Lane Bryant where she served as SVP of design, trend and product development and was responsible for vertical product integration. She also held roles at Chico’s, Lis Claiborne and Talbot’s.
Simmons joined Body Central from Coldwater Creek, where he held numerous positions in the e-commerce and marketing groups, most recently as division vp of e-commerce.
"We have much to accomplish and an urgency to improve the product offering," said CEO Brian Woolf. "In addition, we will be focused on building the brand, improving our customers’ shopping experience in our stores, and unifying our direct and store marketing to become a true multi-channel business."
He said the company would be modifying its prototype in 2013 and paring back expansion to 25 units.
"Lastly, we expect current trends in our business to continue to be weak through the first half of this year with pressure on gross margins. Longer term, we are optimistic about our business model and the niche we can continue to develop in the fast fashion segment."