Best Buy sees investments squeezing near-term profits

Tue May 21, 2013 12:26pm EDT
 
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By Dhanya Skariachan

(Reuters) - Best Buy Co Inc reported lackluster sales in the first quarter and warned that efforts to entice shoppers could squeeze profits in the near term.

The news overshadowed its better-than-expected, first-quarter profit and sent shares of the world's largest consumer electronics chain down 4 percent on Tuesday.

Under Chief Executive Officer Hubert Joly, who took the helm last fall, it has been matching rivals' online prices, dedicating more in-store space to faster-growing products such as smartphones and tablets, and investing in employee training and revamping stores.

Joly has also removed layers of management, cut jobs, closed some underperforming stores and decided to shed non-core assets such as its stake in a European joint venture with Carphone Warehouse Group to lower costs.

The results showed Best Buy might need to cut costs further to compete more effectively with the likes of Wal-Mart Stores and Amazon.com.

"The company has plenty of fat to cut, which management can then reinvest into improved price competitiveness; upgrading its e-commerce capabilities; and better customer service," BB&T Capital Markets analyst Anthony Chukumba wrote.

On a conference call, Joly told investors that Best Buy has taken a host of steps to boost its online traffic and sales. It has invested in targeted marketing and added more relevant product recommendations.

The retailer plans to invest more to make its website easier to navigate and replace its decade-old search platform with one that will produce more relevant results.   Continued...

 
A Best Buy logo is seen at the company's store during Black Friday in San Francisco, California November 23, 2012. REUTERS/Stephen Lam