Wounded retailers have a tendency to take irrational actions which means Walmart could have its hands full this holiday season as Best Buy is looking desperate and has a new CEO at the helm.
Best Buy reported dismal second quarter results earlier this week, missing analysts’ estimates by a wide margin just one day after the company raised eyebrows by selecting a CEO with no retail experience to engineer a turnaround. Best Buy said it earned $12 million, or 4 cents per share, during the second quarter ended August 4, compared to $150 million, 39 cents a share, the prior year. Even if previously announced restructuring charges are excluded, net earnings from continuing operates were $68 million, or 20 cents a share, still well below the 31 cents a share analysts forecast. And to make matters worse the company suspended guidance as it prepares to onboard a new CEO who has to obtain a visa before he can start work!
"Based on the normal seasonality of the business, the majority of the company`s annual earnings occur in the second half of the year," Best Buy said in a statement. "Due to lowered expectations for industry wide sales and the uncertainty associated with several key product launches expected in the second half of fiscal 2013, the company has reduced its annual earnings expectations. In addition, the company has just announced a new CEO who will start in early September. Given these factors, the company does not intend to further provide or update earnings guidance for fiscal 2013."
Total company revenues declined 2.8% to slightly more than $10.5 billion, with same store sales at domestic stores falling 1.6% and comps at international stores declining 8.2%.
Details of Best Buy’s weak financial performance followed an announcement the prior day that Hubert Joly would serve as CEO. Joly’s appointment raised eyebrows on a number of levels because it was announced sooner than some analysts expected and the choice appeared curious because Joly lacks retail experience. That make him an unknown commodity in the retail world where competitors have to wonder whether he is inclined to pursue irrational promotional efforts that could disrupt an already intensely promotional holiday season.
Joly joins Best Buy after serving since 2008 as CEO of Minneapolis-based Carlson, a global hospitality and travel company known for brands such as Radisson hotels and TGI Friday’s restaurants. From 2003 to 2007, he led Carlson’s travel division.
In announcing Joly’s appointment, Best Buy touted the executive’s experience in turnaround situations. In the case of Carlson’s travel unit, Best Buy said Joly increased sales to $25 billion in 2007 from $8 billion in 2003 and positioned the company as a leading edge, technology empowered, professional services provider that delivered savings, service and security to corporate and government clients, both off-line and on-line. As CEO of Carlson, Best Buy said Joly crafted and led the implementation a strategy called Ambition 2015 that was designed to strengthen the company’s 900 T.G.I. Friday’s restaurants and worldwide network of 1,000 hotels.
Prior to Carlson, Joly was with media company Vivendi from 1999 to 2001 and with EDS from 1996 to 1999. Much of his career, from 1983 to 1996, was spent with McKinsey & Company, Inc., working in the firm’s Paris, New York and San Francisco offices. He is a graduate of École des Hautes Études Commerciales de Paris and of the Institut d'Etudes Politiques de Paris. He is expected to join Best Buy early next month after securing a visa.
"Hubert was an outstanding candidate for this position and I am confident he will be a great fit for Best Buy," said Best Buy chairman Hatim Tyabji. "Hubert’s range and depth of experience in transforming companies is exactly what the company needs at the moment, as is his energetic, imaginative and experienced leadership in executing strategies."
Joly replaces interim CEO Mike Mikan who stepped in back in April to fill the void created when Best Buy dismissed former CEO Brian Dunn after it was determined he had an inappropriate relationship with a subordinate. After Joly joins the company, Mikan will remain on the board as serve as chairman of the audit committee, although at one point he was regarded as a possible successor to Dunn.
The appointment didn’t sit well with Richard Schulze, Best Buy’s founder, largest shareholder and former chairman who had been negotiating a buyout offer that was terminated over the weekend.
"Hubert Joly is an accomplished executive. However, Best Buy continues to face enormous challenges and needs a clear plan and a proven leadership team with deep retail experience and knowledge of Best Buy to win back customers, inspire employees and reinvigorate its trusted brand," Schulze said in a statement. "I will continue to pursue my proposal which will provide compelling value for shareholders and create new opportunities for customers and a bright future for Best Buy employees."
Schulze added that he was disappointed by the Best Buy board’s abrupt public termination of private discussions to provide permissions and information needed to make a fully financed offer.
"We had believed we were close to an agreement for a reasonable standstill period and are eager to resume our discussions immediately if the board is truly interested in reaching an agreement in shareholder interests. It is time for everyone involved to focus their energies on saving Best Buy. Time is of the essence, as value is eroding every day."