By Dhanya Skariachan
Feb 27 U.S. retailer Best Buy Co Inc
reported a better-than-expected profit in the quarter covering
the holiday season and said it would more aggressively cut costs
this year to fund its turnaround efforts, sending shares higher
in midday trading.
The news heartened investors who had been concerned about
profits being squeezed during the fourth quarter, the most
heavily promoted and discounted holiday-shopping season since
the recession, and shares rose 5.6 percent to $27.26.
Best Buy had slashed prices throughout the holidays to
thwart competition from Wal-Mart Stores Inc, Amazon.com
Inc and other chains, and had warned last month of a
bigger-than-expected drop in quarterly operating margins.
"The quarter was less bad than everyone expected," said BB&T
Capital Markets analyst Anthony Chukumba, who was encouraged by
Best Buy's efforts to court online shoppers and rein in costs.
The company's stock, one of 2013's hottest, is down 31
percent this year, while the larger S&P 500 Index index
is down 0.2 percent. It trades at about 11.6 times forward
earnings, while the retail sector trades at a multiple of 13.7.
The world's largest consumer electronics chain said it would
more aggressively cut annualized costs, by about $1 billion. It
originally planned to cut costs by $725 million in North
America, a target it has exceeded by $40 million.
The retailer has earned a profit for three straight
quarters, reaping the benefit of restructuring efforts
spearheaded by Chief Executive Hubert Joly and Chief Financial
Officer Sharon McCollam.
Under Joly, Best Buy has stripped away layers of management,
cut jobs and costs, shut unprofitable stores and boosted cash by
selling its stake in a European joint venture with Carphone
Warehouse Group Plc.
MORE FAT TO CUT
Still, Chukumba said the company had further fat to cut and
expected the retailer to work on trimming corporate overhead
expenses and personalizing its marketing.
Earlier this week, the New York Post cited an inside source
as saying the retailer could lay off more 2,000 managers. Best
Buy declined comment on the report.
Other analysts see Best Buy saving more due to its recent
focus on improving how it manages items returned by shoppers.
The retailer said it sees total sales and comparable store
sales remaining slightly negative in the first half of the
current financial year due to larger economic concerns, but did
not give more details.
"There are several moving parts to their guidance for the
year, but today's release maintains our confidence that the
turnaround is progressing," said Janney Capital Markets analyst
Best Buy's overall adjusted operating margin was down 120
basis points at 4.5 percent in the holiday quarter, versus
Strasser's estimate of 3.8 percent.
The company earned a net $310 million, or 88 cents a share,
from continuing operations in the fourth quarter ended Feb. 1.
That follows a net loss of $461 million, or $1.36 a share, a
Excluding special items, it earned $1.24 a share. The
special items included restructuring and asset impairment
charges and the tax impact of Best Buy Europe sales.
Analysts, on average, expected a profit of $1.01 a share
excluding items, according to Thomson Reuters I/B/E/S.
Sales fell 3 percent to $14.47 billion, missing analysts'
average estimate of $14.66 billion.
Comparable store sales, comprising revenue at stores,
websites and call centers operating for at least 14 full months,
fell 1.2 percent.
The company, which recently started shipping directly from
its 1,400 stores to compete with rivals Amazon and Wal-Mart,
said comparable online sales grew 25.8 percent at its domestic