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Multiple Discoveries from NASA's New Horizons Pluto Mission

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December 21, 2012

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Best Buy Suffers 91 Percent Drop In Profits, Disappoints Analysts With New CEO
2012-08-21 16:00:17 (214 weeks ago)
Posted By: Intellpuke

Profits at Best Buy, the U.S.'s biggest consumer electronics retailer, plummeted 91% in the second quarter, an announcement that came a day after the company named a new chief executive.

The troubled retail chain saw sales drop both in the U.S. and internationally, but the biggest hit came from a $91 million restructuring charge, primarily related to its plans to shut down a swathe of its "big-box" giant retail stores. Best Buy reported a profit of $12 million for the quarter ended August 4 versus $128 million a year earlier.

The company's shares hit a nine year low in early trading on the New York Stock Exchange. The shares had fallen Monday when the firm announced takeover talks with founder Richard Schulze had collapsed and that Hubert Joly, who specializes in corporate turnarounds, would take over as CEO.

The firm has been without a full-time CEO since April when former boss Brian Dunn, 51, left Best Buy with a $6.6m payoff after what the company described as "close personal relationship" with a 29-year-old female employee that "negatively impacted the work environment".

(story continues below)

Joly is the former head of Carlson, a hospitality company that owns TGI Fridays among other brands. Analysts were disappointed by his lack of retail experience. Joly, who is French, is expected to start in September when his visa is secured. "We believe that this is a herculean task even for an accomplished retail executive and believe that Mr Joly's complete lack of retail experience will be an impediment to his success," Wedbush Securities analyst Michael Pachter wrote in a research note.

Joly faces a corporate as well as a financial challenge at the company. Schulze has offered to take the company private for $9 billion. Schulze, who grew the chain from a single store and was its chief executive for 36 years, owns 20% of Best Buy. The talks stalled ahead of the appointment of Joly and the earnings announcement. Schultze said he was "disappointed and surprised by the Best Buy Board's abrupt termination of our discussions."

Best Buy has seen off real world rivals including Circuit City, which filed for bankruptcy in 2008, to emerge as the last large electronic retail chain in the U.S. It, too, is struggling with increased competition from Amazon and other online retailers. Along with its real-world rivals Best Buy suffers from what retail analysts call "show-rooming" when potential customers try products in store then go home to purchase them cheaper online.

In March Best Buy announced plans to shut 50 stores as part of an $800 million cost saving drive. In its latest results Best Buy said it had reduced its U.S. big box square footage by 4% year-over-year and that domestic revenue per square foot were up 1% year-over-year.

Sales from stores, call centers and websites operating for at least 14 months – known as same-store sales – fell 3.2% in the latest period. Best Buy's U.S. same-store sales fell 1.6%, while internationally sales dropped 8.2% with the company blaming lower sales in China, Canada and "increased competitive conditions in Europe". Sales of mobile devices including eReaders and smartphones soared but were offset by falling sales for notebooks, TVs, cameras and other items.

The company declined to give any guidance on future sales but on a conference call with analysts executives said they were more confident about the second half of their financial year, traditionally the largest sales period for retailers.

Best Buy made a $1.34 billion (then £1 billion) investment in Carphone Warehouse in the U.K. in 2008 and had planned to open branches across Britain. The venture failed and it shut its larger Best Buy stores in the U.K. The two companies retain a joint venture called Best Buy Europe.

Same-store sales at Best Buy have declined for two of the last three years. The company posted a net loss of $1.23 billion on revenue of $50.7 billion for the year that ended in March, its first annual loss since 1991.

Intellpuke: You can read this article by Guardian U.S. Business Correspondent Dominic Rushe, reporting from New York City, N.Y., in context here:

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