Best Buy Co., the world’s largest consumer-electronics retailer, posted an $81 million first- quarter net loss as the company lowers prices to compete with online rivals.
The loss of 24 cents a share in the quarter ended May 4 compares with net income of $158 million, or 46 cents, a year earlier, the Richfield, Minnesota-based company said today in a statement. Sales by stores at least 14 months fell 1.3%.
Chief Executive Officer Hubert Joly, hired in August to turn Best Buy around, made permanent its holiday policy of matching Internet competitors’ prices to win back sales from Amazon.com Inc. That contributed to the company’s gross margin - - the portion of sales left after subtracting the cost of goods sold -- shrinking about 1.8 percentage points to 23.1%. Analysts projected 24.3%.
“The magnitude of the gross margin decline is likely to give investors pause around the pace of the overhaul,” Colin McGranahan, an analyst at Sanford C. Bernstein & Co. in New York, wrote today in a note. He rates Best Buy market perform, the equivalent of a hold.
Best Buy slipped 3.1% to $25.99 at 10:19 a.m. in New York. The shares more than doubled this year through yesterday, the second-best performance in the Standard & Poor’s 500 Index behind Netflix Inc.
When Joly took over in September, Best Buy was resisting a takeover bid by founder Richard Schulze and was headed for its first-ever annual revenue decline. Analysts project another two years of falling sales, signaling Joly, 53, has yet to prove the retailer won’t lose relevance as consumers evaluate goods at stores and go online to buy them cheaper.
“For all of Best Buy’s attractiveness, it’s speculative,” said Jerry Bruni, who manages about 337,000 Best Buy shares as founder and chief investment officer of J.V. Bruni & Co. in Colorado Springs, Colorado. “They are making all the right steps. But it’s really early in the game in terms of an operational turnaround.”
Best Buy cut $175 million in expenses in the quarter, in part by eliminating workers across the company, Matt Furman, a spokesman, said today by telephone. He declined to specify the number of job cuts and said store employees weren’t among the reductions. The company trimmed costs by $150 million in the previous quarter.
Excluding the company’s discontinued European operations, restructuring charges and asset impairments, Best Buy had a first-quarter profit of 32 cents a share. Analysts projected 24 cents, the average of 23 estimates in a Bloomberg survey.