Best Buy's earnings decline 77%

A day after offering voluntary buyout packages to nearly all of its 4,000 workers at corporate headquarters, Richfield-based Best Buy Co. Inc. told investors Tuesday it also will put the brakes on new-store growth next year to try to put a lid on costs.

The company said it will cut its $1.2 billion budget for capital expansion in half next year, mainly by opening fewer stores in the United States, Canada and China, though executives declined to give a specific number. Best Buy will open about 125 stores worldwide this year, including its first store in Mexico, which opened last week, and two stores in China, which brings its total there to six.

"We foresee a period in which consumers may significantly shift their spending behaviors, which could have a dramatic impact on retailing," Best Buy CEO Brad Anderson said in a morning conference call with analysts to announce its third-quarter earnings. He added that the company is "preparing for a wide range of outcomes for next year," including significant sales declines.

Sales slowed in the weeks after Thanksgiving, and the company said it expects same-store sales in December to drop 1 to 5 percent. With December being such a key sales month, company leaders deferred a decision about whether to revise full-year earnings guidance from its previous range of $2.30 to $2.90, which it announced last month.

Best Buy, the nation's largest consumer electronics company, said its third-quarter net income dropped 77 percent to $52 million, or 13 cents a share, but said it was largely due to a dramatic decline in the stock price of Carphone Warehouse Group. Best Buy owns about a 3 percent stake in the London-based company.

Beating the estimates

Excluding the impairment charge for Carphone Warehouse, Best Buy earned 35 cents a share, besting Bloomberg analysts' estimates by 10 cents. Revenue for the quarter ending Nov. 29 rose 16 percent to $11.5 billion, while sales at stores open for 14 months or more fell 5.3 percent overall, and 6.3 percent in the United States.

Wall Street rewarded Best Buy's moves to lay off workers and slow growth by bidding shares up 18 percent Tuesday to $27.68.

"They're gaining market share, customer-service scores are up, and they're doing what they can in this environment," said Brady Lemos, an analyst with Morningstar in Chicago. "Best Buy is already doing all of the right things."

Best Buy's quarterly results offer a glimpse into the psyche of American consumers, who have been battered with news of widespread layoffs, falling home values and gut-clenching monthly financial statements that spell out the shrinking value of their investments.

No longer are consumers shelling out for once-hot items such as digital cameras, MP3 players and GPS navigation products. Sales of those dropped by double digits last quarter. Overall, Best Buy's consumer electronics category, which last year made up about 42 percent of its total sales, dropped to 39 percent for the quarter.

The lone growth spot was in the home office category, which increased 11 percent mainly on the popularity of notebook computers.

As rival Circuit City liquidates inventories and closes about 150 stores around the country, Best Buy said its stores in those markets already are seeing a boost in sales.

Best Buy President Brian Dunn said in an interview Tuesday that the company is scrutinizing every dollar it spends, from workers to store upgrades to future investments, and that the company intends to "use this time to retool our business."

"The first strategy is survival," he said. "It's a lethal storm out there."