Best Buy posts mixed results in 2Q

Shares of Best Buy fell nearly 7 percent on Tuesday after the company reported another quarterly sales drop and said revenue declines will continue through the holiday shopping season.

Sales for the quarter that ended this month were disappointing. At Best Buy stores open at least 14 months — a key industry benchmark — revenue fell about 3 percent. Such sales have now dropped in 13 of the past 14 quarters.

The company's revenue slipped 4 percent to $8.9 billion and net income fell 45 percent to $146 million. But much of that decline was due to a big one-time gain from a lawsuit settlement a year ago.

CFO Sharon McCollam warned during an investors conference call that sales likely will slide by a few percentage points in the next two quarters — to Christmas and beyond.

"Industry-wide sales are continuing to decline in many of the consumer electronics categories in which we compete," she said.

The consumer electronic retailer does not see a lot of hot products on the horizon that can boost sales, as much of the nation already has a smartphone and tablet.

While Best Buy officials expect ultra high-definition televisions to eventually gain favor with consumers, they figure that the sets are far too pricey for most consumers at this point.

In the recent quarter, McCollam said, consumers showed fatigue with a lot of products. "Growth in gaming, computing, appliances, and television was more than offset by declines in other categories including mobile, phones, tablets and services," she said.

The company's stores are hurting as more consumers shop online. But McCollam boasted Best Buy is having more success in the digital marketplace. She said domestic comparable online revenue increased 22 percent to $581 million, due to substantially improved inventory, a higher average order value and increased traffic.

Online sales now account for nearly 8 percent of Best Buy's domestic sales.

The retailer is also drawing close to its goal of cutting annual costs by $1 billion a year.

McCollam said the company could exceed that target by reducing the cost of returned, damaged and replaced products. That's now about a $450 million annual expense. But Best Buy is ramping up efforts to swiftly sell more returned goods.

Retail consultant Carol Spieckerman applauded Best Buy and CEO Hubert Joly for not sugarcoating its turn-around efforts.

"They're keeping it real," Spieckerman said. "They haven't overpromised. And from the very beginning, Mr. Joly said they were going to need some time to make all of this work. They're not creating unrealistic expectations."

Consultant Howard Davidowitz said Best Buy has made several smart moves, such as creating stores for Samsung and other manufacturers in Best Buy stores. But he said it may be years before the retailer finds a formula that will serve it well into the future.

That challenge includes figuring out not only how many stores the retailer should have and their size, but also what they sell, Davidowitz said.

The stores' product mix, he said, could include many things beyond the consumer electronics Best Buy has been known for. In the past Best Buy has tried selling musical instruments and exercise equipment.

Davidowitz suggested the company could explore selling everything from auto parts to wine, as it redefines its role in the marketplace.

"They've certainly slashed expenses and they really built up their online business," he said. "It's not that they haven't done things. But it's not enough. They have to be very aggressive about being creative and different. That'll be their challenge."