Best Buy steps up cost-cutting drive [Telegraph-Herald (Dubuque, IA)]
(Telegraph-Herald (Dubuque, IA) Via Acquire Media NewsEdge) After a challenging holiday season, Best Buy Co. Inc. says it is getting even more aggressive on costs.
The Richfield, Minn.-based retailer said Thursday that it now aims to top $1 billion in savings as it continues a "Renew Blue" turnaround that started a little more than a year ago. The company cut $765 million from its operations last year, outpacing the original multiyear target by $40 million.
"That's much faster than anybody expected," CEO Herbert Joly told the Star Tribune. "We've also improved the customer experience in material ways, and we've laid some very important foundations for the future."
Joly declined to discuss reports that the company laid off 2,000 store managers this past week, but he indicated that future savings would be focused on measures other than reducing its workforce of more than 140,000. The strategy, Joly said, will be to eliminate inefficiencies out of structural areas consumers don't see, such as improving logistics, working with vendors and reducing returns.
"We are focused on what we can control," he told investors during a conference call.
The consumer electronics giant has been fighting to strengthen its position in an increasingly competitive marketplace by reducing prices to compete with the likes of Amazon and Wal-Mart. Best Buy telegraphed more than a month ago that its results for the holiday season would be weaker than many had hoped. That disclosure led to a 29 percent decline in the retailer's stock price during a single day of trading last month.
While reporting financial results on Thursday, Best Buy executives emphasized several positive signs - profit margins were eroding at a much slower pace, and sales had "stabilized." Joly said cost reductions and operational improvements helped offset hits to sales through a difficult holiday season marked by price wars, frigid weather and a still-skittish consumer.
Analyst Ken Perkins, of Retail Metrics Inc., said he was encouraged to see Best Buy take an aggressive stance on pricing, which it hasn't been willing to do in the past.
"It feels like Best Buy has gotten up off the mat and has gotten back into the fight in the last year," Perkins said.
Company executives tamped down hopes for a surge in growth in the coming months, however, noting that sales were expected to remain "slightly negative" through the first half of the year.
Sales at stores open at least a year, a key indicator of a retailer's financial health, fell 1.2 percent in the fourth quarter. While that was even more than the 0.9 percent drop the company announced last month for the first nine weeks of the quarter, Best Buy executives said sales actually picked up in January and were "in line" with goals.
"We gained market share," Joly told investors in a morning conference call, "but it came at a cost," as promotional price cuts eroded profits.
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