Best Buy suspends profit outlook, share buybacks

(Reuters) - Best Buy Co Inc suspended giving a profit outlook and conducting share buybacks for the rest of the year, as it looks to give its newly named chief executive a chance to understand the business.

The moves coincided with weaker-than-expected quarterly earnings and highlighted the challenges facing Hubert Joly in turning around the world's largest consumer electronics chain.

Analysts were also surprised by the depth of weakness in demand for electronics in key markets like China.

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

Best Buy will need time to complete its turnaround, interim CEO Mike Mikan said on Tuesday.

Even with Joly needing some time to get up to speed, some on Wall Street such as BB&T Capital Markets analyst Anthony Chukumba were disappointed to see Best Buy withdraw its outlook.

Chukumba said it was a "little bit jarring" to see the company withdraw its profit outlook, especially since he expects industry fundamentals to improve sequentially in the back half of the year, driven by the upcoming debuts of Windows 8, the iPhone 5, the Nintendo Wii U video game console, and a stronger videogame title release schedule.

While Best Buy is not alone in struggling with a consumer electronics market hurt by a dearth of compelling new products so far this year, its troubles have been exacerbated by a slow response to a shift by consumers to buying online and by the abrupt exit of CEO Brian Dunn due to an ethics probe.

Its problems have been compounded by "dinosaur (store) formats that we just don't need any longer," Widlitz said.

The company is also fending off takeover interest from founder and largest shareholder Richard Schulze, who was forced out as chairman after an internal probe found that he did not inform the board of allegations that Dunn was having an inappropriate relationship with a female employee.

Best Buy said it would not discuss details of its turnaround plan on Tuesday as that "would not be fair" to Joly, who plans to assume the job in September.

The company lowered its fiscal-year earnings outlook, but did not give a figure. Best Buy said it did not expect to further update its earnings outlook for the year.

Best Buy shares were down 2 percent at $17.79 on Tuesday afternoon, after sinking to a nine-year low of $16.25 earlier in the session.

The stock also fell on Monday following the announcement of new CEO Joly, who has headed hospitality and travel company Carlson but who lacks retail experience, and the deterioration of takeover talks with Schulze over the weekend.

Critics have complained that Best Buy has become a showroom for Amazon.com Inc and other online retailers as shoppers go to its stores to check out electronics like high-definition televisions, then buy them elsewhere for less.

Ending the practice of showrooming is a top priority, Best Buy said in June.

The company has also said it is working to improve its online business and wants to reduce retail square footage further than a March plan to close 50 of its 1,100 large U.S. stores. Many investors were looking for deeper cuts to turn around the chain.

COOLING CHINA

Sales at stores open at least 14 months fell 3.2 percent in the fiscal second quarter ended August 4, the company's eighth decline in the last nine quarters. Same-store sales were down 1.6 percent in the United States and 8.2 percent internationally.

"China was even worse than Europe," Janney Capital Markets analyst David Strasser said, adding he had expected only a 3 percent drop for the international business.

"We're seeing continued weakness in the China consumer electronics market that appears to be consistent across major competitors," Best Buy CFO Jim Muehlbauer said.

Best Buy owns Five Star, which has 204 stores, in China.

GOME, China's No. 2 appliance retailer, and bigger rival Suning - seen by some as China's answer to Best Buy - have also talked about a slowdown in the Chinese economy.

Best Buy tied the weakness in China to lower consumer spending, weakness in the housing market and the expiration of government-sponsored rebate programs for appliances.

The markets in China and Europe were facing "enormous difficulties," Best Buy said.

Net income fell to $12 million, or 4 cents a share in the second quarter, from $150 million or 39 cents a share a year earlier. Excluding restructuring charges, it earned 20 cents a share, well short of the analysts' average estimate of 31 cents, according to Thomson Reuters I/B/E/S.

Sales dropped 3 percent to $10.55 billion, while analysts had forecast $10.63 billion.

The company, which bought back $122 million worth of shares in the quarter, said it has suspended repurchases for the current year as it goes through the transition to a new CEO.

(Reporting by Dhanya Skariachan and Martinne Geller in New York; editing by Maureen Bavdek, Lisa Von Ahn, Jeffrey Benkoe and Matthew Lewis)

Source: http://news.yahoo.com/best-buys-quarterly-same-store-sales-fall-again-120958623--sector.html

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