The quarterly report came a day after Best Buy ended talks with its largest shareholder and founder, Richard Schulze, over a deal in which he and a group of buyout firms were proposing to take a minority stake in the firm in exchange for three seats on the board.
For the quarter, Best Buy reported a loss of $409 million, or $1.21 a share, versus a loss of $1.82 billion, or $5.17 a share, a year earlier. Among other items, the latest quarter included $202 million in restructuring charges, $822 million in goodwill impairments, and an $18 million gain on the sale of investments. The year-ago period included $32 million in restructuring charges, $1.21 billion in goodwill impairments and a $55 million gain. Stripping out one-time items, per-share earnings were $1.64 versus $2.18 a year ago.
Revenue was roughly flat at $16.71 billion. Analysts expected earnings of $1.54 a share on $16.34 billion in revenue. “It was a quarter that was driven, not given,” said Joly, adding that Best Buy is “intently focused on the two problems we have to solve: stabilizing and improving our comparable store sales and increasing profitability across our global businesses.”
Consumer & Retail — Specialty Retail SALES MOMENTUM PERSISTS IN Q3 Investment recommendation
WSM reported Q3 EPS of $0.49, $0.05 ahead of our estimate and $0.04 above consensus. Prior guidance was $0.43-$0.46.
Comparable brand revenue (including DTC sales) increased 8.5% on top of +7.3%, above our forecast of 4.4% growth. Pottery Barn’s comparable brand revenue was up 11% on top of +7%, and the Williams-Sonoma brand turned in its first positive result in four quarters. The gross margin increased 70bps yr./yr., above our forecast for flat GM.
WSM raised its FY12 operating EPS guidance by $0.01 to $2.45-$2.52. We are raising our FY12 estimate $0.01 to $2.52. We are maintaining our BUY rating and DCF-generated price target of $55. At 15x our FY13 EPS estimate (ex-cash/share of $2.72) and 6x FY13E EV/EBITDA, we don’t
believe the growth potential of the e-commerce business is adequately reflected at the current valuation. Investment highlights
Q4 EPS guidance of $1.21-$1.28 appears conservative. This includes $0.02 in expenses related to WSM’s Australia expansion and the impact of Hurricane Sandy. Our Q4 EPS estimate moves $0.03 lower to $1.28 versus consensus of $1.33.
We are raising our FY13 EPS estimate by $0.04 to $2.90, $0.09 ahead of consensus. We forecast comparable brand revenue growth of 7.5% on top of +5.9%,
Shares of Google were down sharply and subsequently halted after the company announced its earnings earlier than the market had anticipated. The results were expected after hours but were published early in an SEC report.
Google reported a profit of $2.18 billion, or $6.53 a share, compared with $2.73 billion, or $8.33 a share, for the year-earlier period. The company said it earned $9.03 a share on an adjusted basis on revenue (excluding taxes) of $11.33 billion. The consensus was for the company to earn $10.65 on revenue of $11.87 billion.
Google said that aggregate paid clicks increased 33% year-over-year and increased 6% over the second quarter. Average cost-per-click decreased 15% year-over-year and decreased 3% quarter-over-quarter. The company broke down Motorola revenues of $2.58 billion, with $1.78 billion coming from the mobile segment and $797 million from the home segment.
Network revenues rose 21% to $3.13 billion, while sites revenues grew 15% to $7.73 billion.
In addition, the company announced on its blog that it had partnered with Samsung to create the Chromebook laptop. Starting today, the new Samsung Chromebook is available for pre-order online from Amazon (AMZN), Best Buy (BBY) , PC World and other retailers.
this holiday season, even as it plays down its concerns over shoppers browsing gadgets in stores only to buy them for less online. Best Buy said it wants to turn more shoppers into actual buyers.
The electronics chain also is preparing to offer free home delivery on merchandise that is out of stock in stores, according to a person familiar with the matter, in spite of recent remarks by new CEO Hubert Joly that “showrooming” by consumers has been blown out of proportion. The electronics retailer says it is taking these steps to improve the percentage of people who walk into their stores and leave with a purchase, which is about 40% of shoppers.
The Journal noted that Best Buy’s seemingly contradictory stance underscores the conundrum facing executives at many big-box chains. Aware that they need to adapt aging business models to the realities of mobile- and computer-aided shopping, they don’t want to overreact or lose sight of what made them successful – namely, selection and service.
Best Buy Founder Offers $8.8 Billion to Buy Out Company
Richard Schulze, the founder of Best Buy, offered to buy the electronics retailer on Monday for as much as $8.8 billion.
Mr. Schulze, who resigned from the company’s board in June, said he would offer Best Buy shareholders between $24 and $26 for each of their shares in the electronics company, according to a letter sent to the board that he made public.
The offer represents a premium of 36 percent on the low end of his offer and a premium of 47 percent on the high end from the company’s closing share price on Friday. In pre-market trading on Monday, Best Buy shares were up 24 percent, to $22
“There is no question that now is the moment of truth for Best Buy and that immediate and substantial changes are needed for the company to return to its market-leading ways,” Mr. Schulze said in a statement. “I am deeply concerned that further delay and indecision will cause additional loss of both value and talented leaders who are now uncertain of the company’s future.”
With a 20.1 percent stake in the company, the Best Buy founder is the company’s largest shareholder.
In his letter, Mr. Schulze said he had held discussions with several private equity firms interested in participating in the deal, as well as with former Best Buy senior executives, including Brad Anderson and Allen Lenzmeier.
“Bold and extensive changes are needed for Best Buy to return to market leadership,” Mr. Schulz wrote. “The company’s best chance for renewed success will be to implement these changes under a different ownership structure.”
The Best Buy founder said he planned to fund the acquisition by contributing $1 billion of his own money, securing investments from private equity firms as well as debt financing.
In his letter, Mr. Schulz that “Credit Suisse, who I have retained as my financial advisor, is highly confident that it can arrange the necessary debt financing.”
Best Buy has $2.2 billion in debt and $1.1 billion in cash on hand, according to Capital IQ data.
In addition to Credit Suisse, the law firm Shearman & Sterling is advising Mr. Schulze.
Bloomberg reports Best Buy Co. founder Richard Schulze has been recruiting executives to help lead the retailer if his attempt to take the company private is successful, according to a senior Best Buy executive.
“He is talking to people he trusts,” J.D. Wilson, senior vice president of enterprise capabilities, said in an interview. “There is a small group he’d like to have with him in righting the ship. He is serious as a heart attack.” Wilson, who said his position is being eliminated as part of Best Buy’s cutbacks, was approached by Schulze in June and said he would work for the company if a deal went through.
Schulze also has been seeking to recruit other executives such as former Chief Executive OfficerBrad Anderson, said a person familiar with the matter. Anderson has told other former Best Buy executives he is interested in joining Schulze’s effort, the person said.
Schulze, 71, has been exploring taking the world’s largest electronics retailer private after stepping down as chairman last month, a person familiar with the matter has said. An internal probe found he failed to tell the board about allegations that then-CEO Brian Dunn was having an inappropriate relationship with a female employee. Schulze said when he resigned that he would consider all options, including selling his 20% stake in the Richfield, Minnesota-based company.
Through a spokesman, Schulze declined to comment. Bruce Hight, a spokesman for Best Buy, declined to comment. Anderson didn’t immediately return a phone message seeking comment.
Best Buy rose 2.7% to US$18.24 at 9:41 a.m. in New York after advancing as much as 5.9%. The shares had fallen 24% this year through July 27.
While Schulze has had discussions with several former executives interested in rejoining the company, he hasn’t reached an agreement with anyone, said a person familiar with the matter. He has also been speaking with potential investors and private-equity funds about raising money from them, said this person.
Best Buy has struggled as customers migrated to Amazon.com Inc. and other online merchants, posting a net loss of US$1.23 billion on revenue of US$50.7 billion for the fiscal year that ended in March, its first annual loss since 1991, data compiled by Bloomberg show. Same-store sales have declined in seven of the last eight quarters.
It will be challenging for Schulze to find private-equity firms willing to take on the risks associated with Best Buy and to help fund a transaction, Michael Pachter, an analyst for Wedbush Securities Inc. in Los Angeles, said last month. Best Buy’s cash flow will keep declining and the company will continue to lose money, he said.
A buyout of Best Buy would cost at least US$30 a share to convince long-time investors to sell, Anthony Chukumba, an analyst at BB&T Capital Markets in New York, said last month. That would equate to a total value of about US$11 billion, including net debt.