Outlines New Transformation Strategy Describes Specific Actions to Improve Business Performance
-- Fourth Quarter and Full Year EPS:
-- GAAP: loss of ($4.89) in the fourth quarter; ($3.36) for the full year, inclusive of previously announced charges
-- Adjusted (non-GAAP): profit of $2.47 in the fourth quarter, up 25 percent; $3.64 for the full year, up 6 percent
-- Transformation Strategy to Focus on:
-- Multi-year cost reduction program
-- U.S. store format improvements
-- Growth initiatives
-- Improved customer experience
-- Actions to Improve Business Performance:
-- $800 million in planned cost reductions by fiscal 2015; $250 million in fiscal 2013
-- Reductions to fund investments in enhanced customer experience and growth initiatives -- Launch Connected Store full market test in the Twin Cities and San Antonio in fiscal 2013 -- Closure of 50 U.S. big box stores in fiscal 2013
-- Opening of 100 U.S. Best Buy Mobile small format stand-alone stores in fiscal 2013
-- Plans to grow Domestic segment online revenue 15 percent in fiscal 2013
-- Fiscal 2013 EPS Outlook
-- GAAP: $2.85 to $3.25
-- Adjusted (non-GAAP): $3.50 to $3.80, up 3 to 12 percent vs fiscal 2012 EPS of $3.39 (as recast for new fiscal year)
MINNEAPOLIS, March 29, 2012 -- Best Buy Co., Inc. (NYSE: BBY) today reported a GAAP net loss of ($1.7) billion, or ($4.89) per share, for its fourth quarter ended March 3, 2012 compared to net income of $651 million, or $1.62 per diluted share for the prior-year period. The fiscal fourth quarter 2012 results include $2.6 billion of charges primarily related to the actions announced on November 7, 2011, which consist of the purchase of Carphone Warehouse Group plc's (CPW) share of the Best Buy Mobile profit share agreement and related costs, a non-cash impairment charge to reflect the write-off of Best Buy Europe goodwill, and restructuring charges (primarily associated with U.K. big box pilot store closures).
Excluding the above charges, adjusted (non-GAAP) diluted earnings per share for the fourth quarter were $2.47, an increase of 25 percent when compared to adjusted diluted earnings per share of $1.98 for the prior- year period. Comparable store sales for the quarter declined 2.4 percent compared to a decline of 4.7 percent for the prior-year period.
For the fiscal year ended March 3, 2012, GAAP loss per share totaled ($3.36) compared to diluted earnings per share of $3.08 in fiscal 2011. Adjusted (non-GAAP) diluted earnings per share for the fiscal year totaled $3.64, an increase of 6 percent when compared to the previous year's adjusted diluted earnings per share of $3.43. Comparable store sales for the fiscal year declined 1.7 percent compared to a decline of 1.8 percent for the prior-year period.
Please see "Reconciliation of Non-GAAP Financial Measures" attached to this release and on the investor relations website, www.investors.bestbuy.com, for more detail.
ACTIONS TO TRANSFORM BUSINESS OPERATIONS
"In order to help make technology work for every one of our customers and transform our business as the consumer electronics industry continues to evolve, we are taking major actions to improve our operating performance," said Brian J. Dunn, CEO of Best Buy.
"As part of our multi-channel strategy, we intend to strengthen our portfolio of store formats and footprints --- closing some big box stores, modifying others to our enhanced Connected Store format, and adding Best Buy Mobile stand-alone locations --- all to provide a better shopping environment for our customers across multiple channels while increasing points of presence, and to improve performance and profitability.
"These changes will also help lower our overall cost structure. We intend to invest some of these cost savings into offering new and improved customer experiences and competitive prices --- which will help drive revenue. And, over time, we expect some of the savings will fall to the bottom line. At the same time, we will continue to accelerate our key initiatives --- growing connections and services, expanding our digital capabilities and growing our business in China.
"As a result, we believe these actions will position us to grow earnings, improve ROIC, and increase value to our shareholders in the years ahead."
$800 Million Multi-year Cost Reduction Program
In order to be more efficient and align the company with the opportunities that will provide the greatest returns, the company is taking significant actions to lower its cost base:
• Planning $800 million in cost reductions by fiscal 2015; including approximately $250 million in fiscal 2013. The planned Domestic segment reductions include:
o Retail stores: $300 million o Corporate and support structure: $300 million
o Cost of goods sold: $200 million. Specific actions intended to lower costs are expected to include:
o The closure of 50 U.S. Best Buy big box stores in fiscal 2013. o Cost savings in corporate and support structure from IT services savings, procurement savings on non merchandise purchases, a reduction in outside consultant services and reduction of approximately 400 positions in our corporate and support areas.
o Savings in cost of goods sold driven by reduction of product transition costs, lower product return and exchange expenses and supply chain efficiencies.
U.S. Store Format Improvements
Best Buy's retail store strategy is to increase points of presence, while decreasing overall square footage, for increased flexibility in a multi-channel environment. The company intends to remodel key stores with a new Connected Store format in fiscal 2013, and to continue to build out the successful Best Buy Mobile small format stores throughout the U.S.
• Based on results from store pilots conducted in 2010 and 2011, Best Buy will be deploying "at-scale" market tests of its new Connected Store format in the Twin Cities and San Antonio metro areas. The store remodels are expected to be completed before the 2012 holiday season. Connected Stores are remodeled big box stores that focus on connections(1), services and multi-channel experience through a total transformation of both the store and the operating environment.
• The company expects total big box square footage in these combined test markets to be reduced by almost 20 percent through store downsizing and closures, while points of presence will increase by more than 20 percent.
• Best Buy expects to open another 100 U.S. Best Buy Mobile small format stores in fiscal 2013 and continues to expect to have a total of 600 to 800 such stores by fiscal 2016 (from 305 today).
Best Buy plans to invest to maximize the long-term opportunities offered through its existing four key growth initiatives: e-commerce, connections, services and China.
• Domestic segment online sales are expected to grow 15 percent in fiscal 2013 and the company continues to expect to reach $4 billion by fiscal 2016.
• As announced earlier this month, Stephen Gillett has been named to the newly created role of executive vice president and president, Best Buy Digital and Global Business Services to lead the company's global digital strategy.
• Connections in the U.S. are targeted to grow 15 percent in fiscal 2013, driven by continued mobile phone growth and increased connections in other product categories including tablets and computing.
• Revenue from Domestic segment services category is expected to grow 10 percent in fiscal 2013.
• In China, the company plans to open 50 new Five Star stores in fiscal 2013, including 14 new mobile store-within-a-store concepts, and continues to target $4 billion in sales and a total of 400 to 500 (from 204 today) Five Star stores by fiscal 2016.
Improved Customer Experience
Best Buy plans to expand the benefits under its Reward Zone Silver loyalty program, whose members account for a significant percentage of the company's profit. Reward Zone Silver customers will receive exciting enhancements including free expedited shipping, premier access to many of the most popular products and major sales events, a free house call from the Geek Squad, and 60-day no hassle returns and price-match policy.
As part of the company's actions to significantly improve the customer experience, Best Buy will be making important changes later this year to its store operating model that are designed to drive a differentiated employee experience. The company plans to introduce a new store labor model to be implemented in all of its U.S. big box stores before the 2012 holiday season that will provide increased store employee training and a new enhanced compensation plan that introduces financial incentives for delivering on customer service and business goals. The new compensation plan, which will be implemented across the company later this year, is based on a model that has been used successfully in the company's Best Buy Mobile stores.