Best Buy's share price fell another 1 percent today after the retailer issued a disappointing quarterly sales and profit report.
The Richfield-based consumer electronics chain is also keeping investors guessing about plans for a turnaround.
The company's net income plunged 91 percent to $12 million. Expenses related to store closures and other one-time charges figured in the loss. Setting those aside, profit was still down by about half. Sales fell about 3 percent at stores open at least 14 months — a key performance measure. The retailer suspended its earnings forecast and will halt a stock buyback program aimed at benefitting shareholders.
"Well, it's a very weak report," said Barry Henderson, an analyst with T. Rowe Price. "It didn't meet my very low expectations."
The company says shoppers bought fewer televisions, cameras, notebook computers and video games.
Best Buy interim CEO Mike Mikan said consumers are worried about the economy and the industry lacks hot new electronic gizmos to draw shoppers into stores. Mikan said the company has much more to do to reinvent itself.
"Best Buy clearly remains in turnaround, which will take time to come out of," Mikan said.
The earnings report came a day after Best Buy named Hubert Joly, former CEO of the Carlson hospitality company, as its new CEO and president. Joly will lead an operation with about 5,000 employees in Richfield and nearly 170,000 around the world.
Mikan said it would not be fair to Joly to discuss the details of Best Buy's current turnaround plan before Joly assumes the CEO post and can shape it to his liking. Mikan said Best Buy's leaders have developed a turnaround plan that goes beyond the already-announced 50 store closures and thousands of job cuts. But the company isn't offering any details about additional store closings, workforce reductions or other possible elements of the plan.
"We have examined ways to expand our services and digital offering while reducing costs and cutting square footage," Mikan said. "This work will be shared with the company's new CEO as he comes on board."
Analysts say any turnaround plan must address growing competition from lower priced online and brick-and-mortar rivals.
Morningstar analyst R.J. Hottovy wants to know what the company has in the works.
"We're maintaining a negative long-term outlook on the company until we see a more substantial plan," he said.
Hottovy said Best Buy needs to lower prices and find products that will draw traffic into stores that are smaller, both in size and number. There are no signs of Best Buy's imminent demise, he said, but "it does face a long-term uphill battle. Eighteen months from now we will see a company that dramatically reduced its square footage. I think you will see a more competitive online offering from the company. But I don't think the competitive landscape is going to get any easier."
Hottovy expects the retailer's sales won't grow much and competitors will continue to squeeze Best Buy's profit margin.
Piper Jaffray analyst Peter Keith said Best Buy's decision to withdraw earnings guidance for the rest of the year is worrisome.
"For a company to withdraw that guidance, usually indicates they have no visibility on their own business," Keith said.
Best Buy offered reasons for dropping the profit forecast: uncertainty about what actions its new CEO may take, lowered expectations for industry-wide sales and lack of clarity about the timing of new consumer electronics products later this year. When an updated version of a product such as Microsoft Windows is in the offering, sales of the existing version can slow as consumers wait for the new one to arrive.
Best Buy officials had little to say about the continuing efforts of founder Richard Schulze to buy the company and take it private. Mikan said the board's proposal for proceeding with a possible buyout offer still stands.
Schulze doesn't like the board's proposal, however. He said it would require him to wait until January to take a buyout bid directly to shareholders.
The lower Best Buy's shares go, the better his proposal of at least $24 a share may look to stockholders. That's a third more than today's close of $17.91.