BEST BUY’S BURDEN
Future Shop closures in Canada take a bite out of electronics retailer’s profits
“Their biggest problem in Canada is that Future Shop was redundant, and once they finish converting the 66 stores . . . they should see a sales rebound.” MICHAEL PACHTER ANALYST
Best Buy Co. is promising better days for its Canadian unit after store closures in March took a bite out of quarterly profits that were otherwise ahead of forecasts on improved U.S. results.
“We’re aiming to strengthen our long-term position in Canada,” Best Buy CEO Hubert Joly said Thursday as he reviewed the first-quarter results with analysts.
Best Buy closed 66 Future Shop locations in the quarter that accounted for about $1 billion (U.S.) in sales and converted the remaining outlets and the Future Shop website to the Best Buy brand. It has recorded $191 million in related charges, with another $10 million to $90 million anticipated through the year.
Joly said the restructuring includes building a multi-channel customer experience that replicates successful aspects of Best Buy’s strategy in the U.S., including launching major appliances in all stores.
“We are working with our partners to bring their products to life in a more compelling way, increasing our staffing and investing in the online shopping experience.”
Joly said a profitable, revitalized Canadian operation is in the cards, but restructuring costs will be a drag this year, with international revenue to slump by 30 per cent to 35 per cent in the second quarter, mostly on Canadian weakness.
The international segment’s revenue in the first quarter ending May 3 dropped 22.1per cent to $668 million on the impact of the closures in Canada and currency exchange losses.
“Their biggest problem in Canada is that Future Shop was redundant and once they finish converting the 66 stores they kept open to the Best Buy format, they should see a sales rebound,” Wedbush Securities analyst Michael Pachter said in an email.
“The second-biggest problem is that Best Buy has to translate its Canadian sales into U.S. dollars and the Canadian dollar has been weak relative to the U.S. dollar. That’s not likely to turn around quickly. So a rebound is likely, but a return to profitability from Canada will take longer.”
The company’s U.S. results have been buoyed by the launch of the latest Apple and Samsung smart- phones and the use of instalment billing, along with consumer demand for ultra-high-definition large-screen TVs and major appliances. The strength was offset by declines in tablet and PC sales.
Pachter said the latest results mask an ongoing loss of market share to lower-cost online retailers, including Amazon, arguing that Best Buy is riding a temporary spending wave in the U.S. driven by job creation and lower gas prices.
Overall, the electronics retailer reported first-quarter revenue of $8.56 billion versus $8.64 billion a year ago and a profit of $129 million, or 36 cents per share, down from $461million or $1.31.
The results topped Wall Street expectations of 29 cents per share in a tough environment for traditional electronics retailers and pushed Best Buy stock ahead by more than 4 per cent in New York to $35.19.