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Story Retrieval Date: 11/24/2014 11:50:01 AM CST

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Kim Adams/MEDILL

Best Buy's fourth-quarter online sales increased 25 percent year-over-year.

‘Old dinosaur’ Best Buy trying to compete with online retail giants

by Kim Adams
Feb 27, 2014

Shares of Best Buy Co. Inc. jumped more than 9 percent Thursday morning after the electronic retailer announced a fourth-quarter profit that was a strong improvement from a year earlier loss.

In the fourth quarter ended Feb. 1, the Minnesota-based retailer earned $293 million, or 83 cents per diluted shared, compared with a loss of $409 million, or $1.21 per diluted share, in the prior-year period.

On an adjusted basis that excluded the sale of mindSHIFT Technologies, the company earned 88 cents per diluted share. That was significantly lower than the $1.11 expected by analysts surveyed by Bloomberg LP.

The results are somewhat distorted because Best Buy recorded an $822 million goodwill impairment charge in the year-ago period to account for the underperformance of its acquired properties in Canada and China.

Fourth-quarter revenue declined 3 percent to $14.5 billion from $14.9 billion. However domestic online sales increased 25.8 percent year-over-year.

In a conference call with investors, CFO Sharon McCollam said online sales accounted for $1.6 billion, or nearly 13 percent, of the company’s total fourth-quarter domestic sales.

Analyst Ronald Weiss of Janney Capital Markets said in the past year Best Buy has transformed its online business and can now challenge online retail giants.

“Eighteen to 24 months ago, the conventional wisdom was that Amazon was going to put Best Buy out of business. That there was no way for this old dinosaur to compete online,” he said in a research note.

“Today Best Buy outlined what it has accomplished and where it is going online, and, quite frankly, now has one of the best online strategies of any brick-and-click retailer.”

McCollam and CEO Hubert Joly said an improved search engine and an increased ship-from-store program have contributed to the fast growth in online sales.

“In the past a portion of the traffic on the site was looking for a product, and the product was not available in the online distribution centers but was available in the store,” Joly said. “The unlocking of ship-from-store at up to 400 stores during the holiday has allowed us to accelerate the online growth in a significant fashion.”

However he said online sales are less profitable than retail sales because customers tend to purchase items with lower profit margins and customers are less likely to purchase related products.

The customer experience must be improved before Best Buy can fully capitalize on the increased online traffic, McCollam said.

“Over time through a series of initiatives to improve online attach rates and strategic pricing, we do expect online profitability to gradually and incrementally improve,” she said.

For the full fiscal year 2014, net income swung to $532 million, or $1.53 per diluted share, from a loss of $249 million, or 73 cents per diluted share, in fiscal 2013.

Total sales declined 3.4 percent to $42.4 billion from $43.9 billion.

Best Buy shares closed at $25.52, down 30 cents or 1.2 percent.