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Best Buy Co. said Tuesday that its fiscal first-quarter profit dropped 26 percent on restructuring charges as the struggling electronics retailer began implementing a turnaround plan.
Its adjusted earnings and revenue both topped Wall Street's expectations. That's sorely needed good news for the electronics chain as it attempts a restructuring to update its increasingly outmoded "big-box" store model. At the same time, the company is seeking a new CEO after the former top executive left amid scandal. Still, the results show the chain has a long way to go to improve results in a sustainable way.
Best Buy said U.S. sales growth in tablets, mobile phones, e-readers and appliances helped offset declines notebooks, gaming, digital imaging and TVs during the quarter. But revenue in stores open at least 14 months, which excludes the impact of stores that open and close during that period, fell 5.3 percent during the quarter. They were dragged down by weakness in Europe and China.
Best Buy has been shrinking store size and focusing on its more-profitable products such as mobile phones. It's also trying to combat the so-called "showrooming" of its stores -- when people browse at Best Buy but purchase electronics goods elsewhere. In April, it announced a major restructuring that includes closing stores, cutting 400 jobs and trimming $800 million in costs.
In a call with investors, interim CEO Mike Mikan said those are just the "first phase" of major changes the chain needs to make in order to survive in a changing retail landscape.
"Today's marketplace is different," he said. "From my perspective it is a marketplace we weren't prepared for. Best Buy's customer experience is no longer unique as it once was."
Mikan, who is in the running to be named permanent CEO, said he hopes to give details on changes in the next few months.
"We know we have to better adapt to the new realities of the marketplace, and we are creating a long-term plan designed to make Best Buy more relevant with customers, and position the company for sustained, profitable returns in the years ahead," Mikan said.
Meanwhile, Best Buy is facing turmoil in its executive ranks. In April, then CEO Brian Dunn left amid allegations that he violated company policy by having an inappropriate relationship with a female employee. An investigation related to the matter resulted in the ouster of founder and chairman Richard Schulze, who knew about the relationship and failed to alert the board or human resources. Chief Marketing Officer Barry Judge also recently left the company.
The Minneapolis-based company reported net income fell to $158 million, or 46 cents per share, in the three months ended May 5. That's down from $212 million, or 53 cents per share, a year ago.
Excluding restructuring charges, earnings were 72 cents per share. Analysts expected 59 cents per share, according to FactSet.
Revenue rose 2 percent to $11.61 billion, aided by an extra week. Domestic revenue rose 5 percent to $8.82 billion, but international revenue fell 6 percent to $2.79 billion on weakness in China and Europe. Wall Street expected $11.5 billion.
Best Buy affirmed its adjusted 2013 net income guidance of $3.50 to $3.80, excluding restructuring charges. Analysts expect $3.60 per share.
Analysts were mixed on the results.
"We view the results as encouraging as they are occurring in the midst of some significant departures from the company," said Citi Investment Research analyst Gary Balter. He said he believes the company's problems are "fixable situation under the right leadership."
During the conference call Balter said that Mikan's call for major change was "music to many of our ears" as analysts have long said the company is moving too slow on making changes.
But NBG Productions analyst Brian Sozzi was skeptical of any turnaround Best Buy takes on, due to the strength of online retailers like Amazon.com, which continues to open fulfillment centers.
"View it this way: for every large fulfillment center Amazon is opening (and hearing it from its shareholder base as result) that is one twist of the knife in the Best Buy story," he wrote.
Shares rose 29 cents, or 1.6 percent, to close at $18.46 Tuesday.