* Sees fiscal Q3 results significantly below year ago
* U.S. unit president to leave at end of fiscal year
By Dhanya Skariachan and Martinne Geller
Oct 24 Retailer Best Buy Co Inc on
Wednesday warned earnings and same-store sales would fall for
its fiscal third quarter, and said the head of its U.S. business
will leave as it starts to restructure under a new chief
Best Buy shares fell 6.8 percent in after-hours trading. The
news came less than a month before the unofficial start of the
biggest selling season of the year for the No. 1 U.S.
U.S. business president Mike Vitelli will exit at the end of
the current fiscal year in early February with a lump-sum
payment of $1.45 million. The executive vice president of U.S.
operations will also depart.
The move is the first big structural change under new CEO
Hubert Joly, who was brought in as the company grapples with the
rising trend of shoppers who treat its stores like showrooms for
cheaper online retailers.
In August, the world's largest consumer electronics chain
suspended profit forecasts and share buybacks for the rest of
the year to give its newly named chief executive time to
construct his own turnaround plan.
The company is also waiting for its former CEO and largest
shareholder, Richard Schulze, to decide whether he can put
together a buyout bid.
Yet one analyst said the most troubling news of all was a
decline in the company's gross margins, which suggests how
aggressive it has become with promotions to lure customers.
"If they try to compete on price they are doomed. Their cost
structure doesn't allow that," said Wedbush Securities analyst
Michael Pachter. "They have to figure out how to charge a higher
price and make shopping in their stores a rewarding experience."
Best Buy said it now expects earnings for the fiscal third
quarter ending Nov. 3 to fall "significantly below" those of a
year earlier, excluding one-time items, due to falling margins
and declines at sales at established stores.
Analysts polled by Thomson Reuters I/B/E/S on average had
expected earnings per share of 36 cents in the quarter. In the
fiscal third quarter a year earlier it earned 47 cents per share
on an adjusted basis.
"I think people were looking for more out of the
third-quarter results given that we had some big product
launches," said Morningstar analyst R.J. Hottovy. "Even though
it was toward the end of the quarter, you had the iPhone 5 out
The retailer also warned same-store sales would decline in
the low-to-mid single digits for the period. Best Buy has posted
same-store sales declines in eight of the last nine quarters.
Best Buy shares fell to $15.77 in after-hours trading from a
$16.92 close on the New York Stock Exchange. The company also
said Wednesday that it would hold an investor day on Nov. 1 to
discuss Joly's plans for the future.