Best Buy Profit Sinks; Firm Will Shed Workers
Best Buy reported a 77 percent decrease in third-quarter earnings and said it will offer buyouts to 4,000 workers at its headquarters.
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Wednesday, December 17, 2008
MINNEAPOLIS, Dec. 16 -- Best Buy, the nation's biggest consumer electronics retailer, said Tuesday that its third-quarter profit sank 77 percent as it faced dramatic changes in consumer spending.
The company also said it will offer buyout packages to about 4,000 employees at its headquarters while slashing spending in a bid to cut costs, news that sent the retailer's stock soaring.
Executives called the past three months the "most challenging consumer environment" in the retailer's history.
"We believe that there has been a dramatic and potentially long-lasting change in consumer behavior as people adjust to the new realities of the marketplace," chief executive Brad Anderson said in a statement. "We also believe that customers will continue to reward those retailers who understand their needs and desires, and offer relevant solutions at fair prices. Yet we clearly recognize that these changes require us to make significant adjustments."
Best Buy, based in Richfield, Minn., said it will offer buyout packages to nearly all its corporate employees while cutting capital spending by 50 percent in 2009. The chain also plans to open "significantly" fewer stores in the United States, Canada and China and said it may have to lay off workers, depending on how many employees accept the buyout offer. The company had about 150,000 full-time, part-time and seasonal workers as of April, according to a regulatory filing.
"We need to prepare our organization to operate in a wide range of potential macroeconomic scenarios in the coming year," Anderson said. "We believe our broad, voluntary program helps prepare us for the unpredictable year ahead while reflecting our company values and respect for our people."
Tuesday's news came about a month after Best Buy's biggest rival, Circuit City, filed for Chapter 11 bankruptcy protection, under pressure from vendors and consumers who aren't spending.
"[Best Buy] may be a bellwether here," said Stifel Nicolaus analyst David Schick in a research note. "We want to hear retailers talk about the consumer slowdown in a historic sense and match the slowdown with historic changes to the model."
But he added that some of his concerns were alleviated by the company's "bold management moves" and weak competitors.
Best Buy's third-quarter profit skidded to $52 million in the three months ended Nov. 29. That's down from $228 million last year.
Excluding a charge related to a decline in market value of its 2.9 percent stake in the British company Carphone Warehouse Group, the company's net income came to 35 cents per share.
The earnings were boosted by strong Thanksgiving weekend sales, which helped Best Buy post results well ahead of predictions by analysts, as polled by Thomson Reuters.
Revenue climbed 16 percent, to $11.5 billion, from $9.93 billion last year.
Best Buy shares climbed $4.21, or 17.9 percent, to $27.68.
