Electronics retailer Best Buy Co Inc (BBY.N) - its share price near a nine-year low - suspended profit forecasts and share buybacks for the rest of the year on Tuesday to give its newly named chief executive time to construct his own turnaround plan.
The moves came in tandem with weaker-than-expected quarterly earnings and underlined the challenges facing Hubert Joly in reviving the company, the world's largest consumer electronics retailer.
Adding to the company's woes was weak demand for electronics in key markets, particularly China, to a degree that took analysts by surprise.
"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."
Some on Wall Street such as BB&T Capital Markets analyst Anthony Chukumba were disappointed to see Best Buy withdraw its outlook. The retailer cut its fiscal year earnings forecast without giving a figure and said it did not expect to further update its outlook for the year.
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.
Best Buy's problems have been compounded by "dinosaur (store) formats that we just don't need any longer," Widlitz said.
Critics have complained that Best Buy has become a showroom for Amazon.com Inc (AMZN.O) 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.
Best Buy's troubles have been exacerbated by the abrupt exit of CEO Brian Dunn due to an ethics probe.
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 shares closed down 1.38 percent at $17.91 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. In addition, takeover talks with Schulze deteriorated over the weekend.
Best Buy late on Tuesday said that Joly will receive a base salary of $1.175 million. He will also be eligible to receive a yearly cash bonus with a target rate of twice his base salary and significant stock awards.
Joly will also receive cash, stock and options worth up to $20 million over a three year period as compensation for benefits he left behind at Carlson.
If Best Buy sells itself, Joly could be eligible to receive a severance payment worth at least twice his base salary and target bonus.
Sales at stores open at least 14 months fell 3.2 percent in the company's fiscal second quarter, ended August 4, the 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 Chief Financial Officer Jim Muehlbauer said.
Best Buy owns Five Star, which has 204 stores in China.
Suning (002024.SZ) and GOME, respectively China's No. 1 and 2 appliance retailers, 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 31 cents expected on average by analysts, according to Thomson Reuters I/B/E/S.
Sales dropped 3 percent to $10.55 billion; analysts had estimated $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)