Best Buy Company Inc. (NYSE:BBY) announced Thursday that it will close 50 big box stores in the United States within the next 12 months, a move that the electronics retailer is making in an effort to lower costs. Best Buy stores in the U.S. have been heavily affected by the new Apple stores, which has gained a considerable amount of purchasers’ market share. During the next fiscal year, 50 “Five Star” stores will be opened in the country of China, including over a dozen new mobile “Store Within a Store” locations.
Best Buy’s Fiscal Fourth Quarter and 2012 Earnings came in well below analyst expectations. Due to 4Q charges of $2.6 billion related to the purchase of Carphone Warehouse Group PLC’s (CPW) share of the Best Buy Mobile profit share agreement, a non-cash impairment charge for Best Buy Europe goodwill, and restructuring charges associated with United Kingdom big box pilot store closures, the company had a 4Q net loss of -$1.7 billion, or -$4.89 per share.
Overall Fiscal Year 2012 (period ending March 3, 2012) net losses tallied -$3.36 per share. Best Buy Chief Executive Brian J. Dunn told investors Thursday, “In order to help make technology work for every one of our customers and transform our business as the consumer electronics industry continues to evolve, we are taking major actions to improve our operating performance. As part of our multi-channel strategy, we intend to strengthen our portfolio of store formats and footprints – closing some big box stores, modifying others to our enhanced Connected Store format, and adding Best Buy Mobile stand-alone locations – all to provide a better shopping environment for our customers across multiple channels while increasing points of presence, and to improve performance and profitability.”
$800 Million Cost Reduction Program
The consumer electronics retailer will implement an $800 million cost reduction program for the 2013 fiscal year which will include domestic reductions of $300 million in retail stores, $300 million in its corporate and support structure along with another $200 million cost of goods sold. Over the next 12 months, 50 big box stores will be closed in the United States.
According to executives, store format improvements will lean toward a new strategy that emphasizes flexibility at the cost of total square footage. Remaining domestic locations will be remodeled to fit in with the Connected Store format which relies more on online solutions and sales.
“These changes will also help lower our overall cost structure. We intend to invest some of these cost savings into offering new and improved customer experiences and competitive prices — which will help drive revenue. And, over time, we expect some of the savings will fall to the bottom line. At the same time, we will continue to accelerate our key initiatives — growing connections and services, expanding our digital capabilities and growing our business in China,” said CEO Dunn.
Best Buy Stock Performance
Best Buy’s stock has gained slightly Year To Date but was down as much as 8 percent during intraday trading Thursday. Just moments before the 4:00pm Eastern Time stock market closing bell, shares for Best Buy Company were priced at $24.73 per share; down 7.1% from Wednesday’s value. Best Buy has a market capitalization of $8.66 billion.
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