Best Buy Beats Q3 Forecast, But Plans Job Buyouts
"The historic slowdown in the economy and its effect on our business over the past 90 days have been the most challenging consumer environment our company has ever faced," said Brad Anderson, vice chairman and CEO of Best Buy, in a statement. "We believe that there has been a dramatic and potentially long-lasting change in consumer behavior as people adjust to the new realities of the marketplace."
Anderson said customers will continue to reward retailers that offer relevant solutions at fair prices, but added, "We clearly recognize that these changes require us to make significant adjustments to our present cost structure."
Best Buy earned $52 million, or 13 cents per diluted share, on $11.50 billion in sales in the quarter. The results compare with earnings of $228 million, or 53 cents per share, on $9.93 billion in sales in the prior-year quarter. The results include a nonoperating impairment charge of $93 million net of tax, or 22 cents per share, related to a decline in the market price of Best Buy's stake in The Carphone Warehouse Group.
Excluding the charge, Best Buy would have earned 35 cents per share. Analysts had expected earnings of 24 cents per share, excluding charges, on revenue of $11.09 billion in the third fiscal quarter.
As part of its plan to reduce costs, Best Buy said that nearly all of its corporate employees are eligible for a severance package effective Dec. 15.
According to the St. Paul Business Journal, Best Buy is offering 7.5 months of severance pay, one year of employer-paid health insurance, one year of employer-paid life insurance and free access to outplacement services to employees who leave the company between by Jan. 5. Employees whose age plus years of service add up to 60 or more will receive 12 months of pay, according to the paper. Best Buy has nearly 4,000 employees at its Richfield. Minn., headquarters.
Anderson and his direct reports, who recommended the package, are not eligible for the separation package, according to the company.
Best Buy may have to lay off workers if not enough employees volunteer for the severance package, according to the company.
"Based on the recent changes we've seen in consumer behavior and the potential for worsening consumer spending, we need to prepare our organization to operate in a wide range of potential macroeconomic scenarios in the coming year," Anderson said in the statement.
Best Buy also plans to reduce its capital spending by about 50 percent next year, including a reduction in new store openings in the U.S., Canada and China. The retailer currently expects SG&A spending to grow by 9 percent next year, while SG&A dollars are expected to increase by no more than 2 percent.
"To bring our cost structure to that level, our efforts have to include savings in corporate staffing," Anderson said in the statement. "We believe our broad, voluntary program helps prepare us for the unpredictable year ahead while reflecting our company values and respect for our people."
Best Buy declined to provide fourth-quarter guidance until it has a better handle on costs related to the employee buyout, according to the company. In the current quarter, analysts predict earnings of $1.36 per share on $14.70 billion in sales.
Best Buy's comparable store sales declined each month in the third quarter: 2.4 percent in September, 7.8 percent in October and 8.7 percent in November. The quarter had seven fewer post-Thanksgiving shopping days than the same period last year.
In the U.S., Best Buy estimates that comparable store sales were flat compared to last year after adjusting for the calendar shift. Partially offsetting the decline was a higher average purchase rate as the company shifts toward more expensive products, such as notebook computers and mobile phones.