Best Buy Co., the largest U.S. consumer electronics chain, is reporting a 90 percent drop in net income during the second quarter, dragged down by restructuring charges and weak sales.
The poor report was announced a day after Best Buy name Hubert Joly, former CEO of the Carlson travel company as its new CEO and president. The chain is also waging a public fight with its former chairman and co-founder Richard Schulze, who wants to take the company private.
The company also said it is halting stock buybacks for fiscal 2013 during the CEO transition. Shares of Best Buy fell almost 10 percent, or $1.76 to $16.40 on the news, following a 10 percent decline the day before on disappointment over Best Buy's CEO choice.
The electronics chain said Tuesday that it earned $12 million, or 4 cents per share, in the quarter ended Aug. 4. That compares with $128 million, or 34 cents per share.
Revenue declined nearly 3 percent to $10.55 billion.
Adjusted earnings were 20 cents per share. Analysts had expected 31 cents per share on revenue of $10.65 billion.
Revenue at stores open at least 14 months fell 3.2 percent for the entire business, including a 1.6 percent drop in its domestic business and an 8.2 percent decline in its international division. The measure is a key indicator of a retailer's health. Analysts had expected a 2.6 percent decline for the total business.
Best Buy said that U.S. sales growth in tablets, mobile phones, appliances and e-readers helped offset declines in gaming, digital imaging, televisions and notebook computers. The company said the international business was dragged down by lower revenue in China, Canada and increased competition in Europe.
Best Buy is hoping that Joly can turn around the company and bring stability that has been badly lacking. Joly, who is French and is expected to take over as CEO in early September when his visa is secured, succeeds Mike Mikan, a board member who has served as interim CEO since former CEO Brian Dunn resigned. Dunn left in April amid a company investigation into an "improper relationship" with a 29-year-old female employee.
Schulze resigned as chairman a month later after the probe found that he knew about the relationship and failed to alert the board or human resources.
Best Buy has struggled with weak sales since the middle of the recession as its big-box stores have become outdated. It's also contending with changing buyer habits. The stores, which shoppers once flocked to for low-priced music, movies and electronics, are becoming unprofitable as customers increasingly use them to browse for electronics, but then buy them cheaper elsewhere.
Best Buy has seen annual declines in revenue at stores open at least a year for two of the last three years. It posted a 1.8 percent drop in the latest fiscal year that ended March 3, a modest 0.6 percent gain in fiscal 2011 and a 1.3 percent decline in fiscal 2010.
Before the scandal with Dunn, the company begun to address its problems. In March, it announced a major restructuring that includes closing 50 stores, cutting 400 corporate jobs and trimming $800 million in costs.
Since then, interim CEO Mikan has been making strong statements about how he plans to restructure the company, focusing on services and revamping stores. In early July, Best Buy said it would lay off 600 staffers in its Geek Squad technical support division and 1,800 other store workers. The company also has been shrinking store size and focusing on its more-profitable products such as mobile phones.
But analysts — and investors — have been impatient. Analysts say some of these changes are too late. They also say that Best Buy needs to close more of its big-box stores, which no longer are necessary since people have shifted from buying big computers and TVs to snapping up smaller items like tablets and mobile phones.
Wall Street has been equally unforgiving of Best Buy's timing. Best Buy shares have lost nearly 70 percent of their value since their pre-recession peak of $56.66 in May 2006.
One of the most vocal critics of the company in recent months has been the company's co-founder. Earlier this month, Schulze, who has a 20 percent stake in the company, made a takeover offer for the chain, offering $24 to $26 per share. Best Buy had said it was considering the offer, which values the company at $8.84 billion.
Schulze said Thursday that he was committed to his offer for the electronics retailer and has heard from a number of private equity firms prepared to make "significant commitments." But Best Buy and Schulze went back and forth in public announcements over the weekend.
In a statement issued by Best Buy Sunday, it laid out certain terms for acquisition talks to proceed. Schulze rejected the terms, citing a company requirement that he forgo taking any offer directly to shareholder for 18 months as unacceptable.