Best Buy suspends profit forecast amid falling profits

The US electronics chain has suspended its earnings guidance as profits plummeted 90% in the second quarter.

by Michael Northcott
Last Updated: 19 Aug 2013

Best Buy yesterday used its Q2 results statement to announce that it was suspending its earnings forecast, thanks to profits of just $12m in the three months to August, compared with $128m in the same period last year. With like-for-like sales also falling 3.2%, there will be very little buzz at Best Buy’s head office today. The chain puts the decline down to falling television and laptop sales, and says that growing tablet and smartphone sales have not been enough to offset the decline.

The announcement compounds an already tough predicament for the chain, as it announced in March that it would close 50 US stores and cut 400 jobs by 2015 to try and save around $800m. But with the eurozone crisis still bubbling away, its European sales have been hit harder than expected too, contributing to an overall decline of 87% in operating income. 

Part of Best Buy's problem in recent years has been the growth of the online electricals retailers. Without such large premises and staffing overheads, they have been able to discount more aggressively and eat a growing portion of Best Buy's lunch. Not to mention that economies throughout the western world have been in recession for the last few years and consumer spending has slowed to alarming lows at times. 

Adding to the general turbulence at the firm, a new chief executive Herbert Joly was appointed just yesterday. But even as the appointment was announced, the chain’s founder Richard Schulze was planning to buy it back into private ownership. The company booted out the offer after he refused to conduct due diligence. With all of this tumult, predictably, the price of shares fell almost 10% in morning trading in New York this morning to around $16.30. 

How Best Buy will manage to get out of this hole is a mystery – with profits falling that fast it’ll take more than an upturn in the economy to get things on an even keel again…

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