Published November 13, 2012
Best Buy Co Inc is targeting an operating margin of 5 to 6 percent over time, the company said on Tuesday as its new chief executive unveiled plans to turn around the world's largest consumer electronics chain.
Shares fell in afternoon trading, however, continuing a slide that has knocked off a third of the company's market capitalization this year.
In a statement ahead of an investor meeting, the company said its short-term goal will be "to stabilize and then begin increasing its comparable store sales and operating margin." Over time, it is aiming for a return on invested capital of 13 to 15 percent in addition to the margin targets.
In the last fiscal year, Best Buy had an operating margin of about 2.1 percent. The last time that margin exceeded 5 percent was in the fiscal year that ended in early 2008.
Best Buy also said on Tuesday that it would pursue a number of priorities, including a plan to "optimize its store footprint on an ongoing basis," which suggested the company may look at ways to shrink or close stores, as some other big-box retailers have done.
The new CEO, Hubert Joly, said in the statement that while the company had its strengths, it also had been too slow to grow online and suffered from the perception that its prices were too high compared with peers.
His long-awaited plan came roughly a week before the unofficial start of the year's biggest selling season, and two months after the turnaround specialist took the helm of the Richfield, Minnesota-based chain.
The meeting gives him a chance to woo investors and to distance the company from Richard Schulze - its founder, former CEO and largest shareholder - who is trying to take it private.
Joly has already made some structural changes. He eliminated the top layer of management at Best Buy's U.S. operations, and earlier this week named former Williams-Sonoma finance chief Sharon McCollam as the new CFO, hoping to tap her experience in developing a higher-margin e-commerce business and cutting costs by reducing square footage.
Joly and his new executive team face the tough task of fixing Best Buy, which is facing cutthroat competition from the likes of Wal-Mart Stores Inc and Amazon.com Inc .
The retailer, which has posted declines in same-store sales in eight of the last nine quarters, warned last month it expected earnings and same-store sales to fall again in the third quarter.
Best Buy shares were down 1.7 percent at $15.58 on Tuesday afternoon.
(Reporting by Dhanya Skariachan in New York; Writing by Ben Berkowitz; editing by Maureen Bavdek and Matthew Lewis)