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Best Buy cuts profit estimates, ceases stock buyback program

updated 08:10 pm EDT, Wed August 22, 2012

Move is latest in effort to revisit the company's prior success

Electronics retailer Best Buy has suspended profit forecasts and share buyback programs for the remainder of calendar year 2012 -- to give its CEO time to build a turnaround plan for the beleaguered company. The move comes just days after the naming of a new CEO and weak quarterly earnings caused by continued financial challenges in markets Best Buy serves.

President of consulting firm SW Retail Advisors Stacey Widlitz said that "the clock is ticking on this one. He doesn't have the liberty of taking time to get to know the business model intimately. Investors are impatient, and the last thing you want to do is make vendors impatient."

Best Buy has commenced a plan to save $800 million by its fiscal 2015 that would see it close 50 of its "big-box" stores during its fiscal 2013, which started at the beginning of March. The retail chain expected these and other cost savings to cut $250 million in 2013 and $300 million in costs just in retail by the 2015 target.

Other focus shifts in an attempt to save money include fewer large-screen televisions stocked, a reduction in the DVD and CD aisles, and an increase on tablets, e-readers, and mobile phones, emphasizing Best Buy's existing strengths in marketshare over its competitors. The alterations in strategies are an attempt to to lure in customers, reversing a downward trend of store visits. Shoppers today visit Best Buy twice a year on average, rather than 10 times a year as they did a decade ago.

The company's earnings forecasts have been cut for the entire fiscal year, and the retailer has declined to provide a lowered figure. The prediction is not expected to be updated for the rest of the year. The last quarter of 2012 is historically responsible for up to 40 percent of an electronics retailer's profits, with this year driven by the release of Windows 8 and the expected increase in PC sales, the iPhone 5, and generally strong holiday season video game releases.

The announcement of Hubert Joly as the new CEO for the troubled electronics retailer came shortly after company founder Richard Schulze was said to have rejected an offer in his attempt to take the business back into private hands. Joly left his position at Carlson, a travel and hospitality company that operates hotels and restaurants including TGI Friday's and Radisson, in order to take the position at Best Buy. He led the turnaround of EDS in France from 1996 to 1999, before switching to Vivendi's video gaming business and restructuring the company. His time at Carlson was spent strengthening the business, and the Best Buy board expects a similar change in fortunes under Joly's leadership.

Investors are reacting poorly to the CEO announcement. Best Buy shares closed at a loss for a third consecutive day at $17.72, continuing the lowering trend since Joly was named as CEO.

by MacNN Staff



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