(Corrects paragraphs 1, 12, 13 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, though investors and analysts were
left wanting for details on how - and how soon - the new chief
executive would turn around the world's largest consumer
The aggressive new targets come as Best Buy faces cutthroat
competition from online and discount retailers like Wal-Mart
Stores Inc and Amazon.com Inc.
CEO Hubert Joly got a difficult reception at an investor day
in New York, as people questioned whether management was
focusing too much on wringing higher sales out of existing
customers rather than attracting new ones. Joly was named CEO on
"I still think I am a little bit mixed on digesting the
take-aways of the presentation. I think they said a lot of good
things, but I think people were looking for a little bit more of
a playbook and the next steps," said John Tomlinson, an analyst
with ITG Investment Research, in New York. "There's a lot of
pieces to the fixing story that seemed a little opaque and
Best Buy's stock 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 stock touched a
10-year low of $14.39 a week ago.
Dimitri van Toren, senior portfolio manager at Dutch asset
manager Syntrus Achmea, which holds about 200,000 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.
The meeting took place against the backdrop of a potential
buyout offer from founder and former CEO Richard Schulze, who is
expected to make an offer as soon as next month.
"I spend no time worrying about what our corporate structure
will be," Joly told reporters after the event. "I tend to focus
on decisions I can influence rather than decisions I can't
A representative for Schulze did not immediately respond to
a request seeking his thoughts on Joly's plan.
Joly said "it would have been ridiculous" to offer more
concrete details after only a few weeks on the job. He said this
meeting was more about setting the record straight and
reassuring investors about the company's future.
"The perception was that Best Buy was dying," Joly said.
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," where 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 be.
"Many of these problems are a result of our own making,"
Joly said during the investor presentation.
Best Buy also said on Tuesday that 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 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 Wall Street's lingering
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 Jan Paschal)