Best Buy Co.'s new chief executive has his work cut out for him, especially with news that the electronics retailer’s profit fell 91% in the second quarter.
The sour earnings report came Tuesday, the day after Best Buy announced Hubert Joly, head of Radisson and T.G.I. Friday’s parent Carlson, as its new chief executive.
Joly brings “expertise in turnaround and growth” at “a critical moment,” Best Buy said. On Tuesday, the company said that in the three months ended Aug. 4 net income plunged to $12 million, or 4 cents a share, from $128 million, or 34 cents, during the same period last year.
Revenue dropped 3% to $10.5 billion.
Best Buy suspended earnings projections for the rest of its fiscal year, noting Joly’s appointment as well as “lowered expectations for industrywide sales and the uncertainty associated with several key product launches” in the next six months.
Joly will take over next month, heading a company attempting a major revival. Best Buy has been slammed by rivals such as Amazon.com. A personal conduct scandal in the spring forced the business to cycle through three chief executives in half a year. With sales sliding, the company has had to rethink its large-format stores, closing some and reworking others. Founder and former Chairman Richard Schulze is attempting to take Best Buy private.
For a while last summer, Best Buy shares traded in the $30 range, but the stock has been steadily sliding since fall 2010. Shares sank to a nine-year low of $16.23 in morning trading Tuesday before closing at $17.91, down 25 cents, or 1.4%
The company’s square footage at big box stores nationwide has shrunk 4% since last year. The steady decline in same-store sales, or sales at stores open at least a year, has slowed domestically, falling to 1.6% in the second quarter compared with a 3.7% dive in the previous quarter.
But abroad, same-store sales tanked 8.2%. Revenue is slipping in China and Canada and increased competition is squeezing the company in Europe.
Online, however, Best Buy is still making headway, with domestic Web-based revenue growing 14% on good sales of tablets, mobile phones, appliances and e-readers. The retailer is losing steam in other sectors, however, including gaming, digital imaging, televisions and notebooks.
“In the U.S., economic conditions are soft and will probably remain so for the indefinite future,” interim Chief Executive Mike Mikan said in a Tuesday call with analysts. “Consumers remain very cautious and sales in the industry may be dampened at the moment by those who are holding back on spending as they await some highly anticipated new technology releases. Like virtually every other competitor in the consumer electronics sector, Best Buy’s second quarter reflects these realities.”