(Corrects paragraphs 1, 6, 7 to fix comparison after company
said forecast was for adjusted and not GAAP margin)
* First goal is to stabilize sales, margins
* Seeks operating margin of 5 pct to 6 pct over time
* Looking at stores for cost savings as well
* Shares close nearly 1 pct lower
By Dhanya Skariachan
Nov 13 Best Buy Co Inc is aiming to
achieve operating margin of 5 percent to 6 percent over time,
the company said on Tuesday, as its new chief executive unveiled
plans to turn around the world's largest consumer electronics
The aggressive new target comes as Best Buy faces cutthroat
competition from discount and online retailers like Wal-Mart
Stores Inc and Amazon.com Inc.
CEO Hubert Joly got a difficult reception from investors,
who questioned whether management was overly focused on trying
to wring higher sales out of existing customers rather than
attracting new ones. Joly was named CEO on Aug. 20.
Best Buy's Shares closed nearly 1 percent lower at $15.70 on
Tuesday, continuing a slide that has knocked off a third of the
company's market capitalization this year. The shares touched a
10-year low last week.
Dimitri van Toren, senior portfolio manager at Dutch asset
manager Syntrus Achmea, which holds about 2 00,000 Best Buy
shares, said he was worried about structural issues and a
"management vacuum" at the retailer, but that he would stay in
the stock despite concerns about the upcoming holiday season.
In a statement on Tuesday, the company said its short-term
goal will be "to stabilize and then begin increasing its
comparable store sales and operating margin." Over time, it is
aiming for a return on invested capital of 13 percent to 15
percent, in addition to a 5 percent to 6 percent adjusted
operating margin target.
On a comparable basis, its operating margin in the last
fiscal year was 4.7 percent. Over the past four quarters, the
margin was 4.2 percent.
Joly said a mixture of excessive costs and price competition
hurt margins, and that the retailer would turn to a wider
variety of higher-margin, private-label products to boost
results. One example is the company's own Insignia-brand
Best Buy has been struggling to combat a phenomenon known as
"showrooming," in which people visit its stores to look at
products and then buy them online for less.
Joly acknowledged the company has suffered from a "price
perception issue" among customers that it needed to address, as
well as weakness in its online operations. The head of the
company's digital business said its online conversion rate -
which measures how successfully Best Buy translates customer
visits into actual sales - was only about half of what it should
"Many of these problems are a result of our own making,"
Joly said at an "investor day" event on Tuesday.
Best Buy also said it would pursue a plan to "optimize its
store footprint on an ongoing basis," which suggested the
company may look at ways to shrink or close stores, as some
other big-box retailers have done. In late March the company
said it would close 50 large U.S. stores.
Joly warned that merely closing stores would not boost
operating income, as most of the big-box stores are already
profitable. Relocation to smaller space may be an option,
however; he said 71 percent of the large-format stores have
leases expiring within the next six years.
The details of Joly's long-awaited plan came roughly a week
before the unofficial start of the year's biggest selling
The investor day meeting gave Joly a chance to woo investors
and to distance the company from Richard Schulze - its founder,
former CEO and largest shareholder - who is trying to take it
Joly has already made some structural changes. He eliminated
the top layer of management at Best Buy's U.S. operations and
earlier this week named former Williams-Sonoma finance
chief Sharon McCollam as the new CFO, hoping to tap her
experience in developing a higher-margin e-commerce business and
cutting costs by reducing square footage.
The retailer, which has posted declines in same-store sales
in eight of the last nine quarters, warned last month it
expected earnings and same-store sales to fall again in the
"I am already sick and tired of negative comps," Joly said,
referring to same-store sales figures.
The CEO also admitted a number of past investments have not
paid off and promised the new leadership would be "prudent"
about that in the future, a nod to ongoing Wall Street concerns
about spending by past management.
(Reporting by Dhanya Skariachan in New York; Writing by Ben
Berkowitz; editing by Maureen Bavdek, Phil Berlowitz, Matthew
Lewis and Dan Grebler)