Best Buy profits from cost-reduction program

Best Buy saw revenues slip in the fourth quarter and fiscal 2013, thanks in part to declining retail traffic fueled by a shorter holiday shopping season and severe winter weather. But all was not bad news for the retailer, which was able to profit from its Renew Blue cost reduction program.

During the fourth quarter, Best Buy reported net earnings of $311 million, a notable improvement from its $460 million net loss a year earlier. For the fiscal year, Best Buy reported net earnings of $523 million, compared to a net loss of $233 million the prior fiscal year.

The main driver of this return to profitability was Best Buy’s Renew Blue effort that saved $765 million during the fiscal year, ahead of its cost reduction target of $725 million. The program is designed produces cost savings through optimization of the field and store operating models in the U.S. and Canada, structural changes to certain compensation and benefits programs; and ongoing optimization of returns, replacements and damages. Best Buy is now targeting a total of $1 billion in savings from Renew Blue.

Cost savings came as topline performance sagged. Revenues fell 3% to $14.47 billion from $14.92 billion in the quarter and declined 3% to $42.9 billion from $43.4 billion during the fiscal year. Domestic same-store sales fell 1.2% during the quarter and 0.4% during the fiscal year.

Looking ahead, Best Buy plans to open more “store-within-a-store” partnerships with technology providers such as Samsung and Microsoft. Best Buy expects continuing slightly negative revenue and same-store sales results during the first half of fiscal 2015.

Hubert Joly, president and CEO of Best Buy, said the company managed to perform well in a difficult fourth quarter.

“As we said in our holiday sales release, the fourth quarter was an environment of declining retail traffic, intense promotion, fewer holiday shopping days and severe weather,” said Joly. “In the face of these unusual circumstances, our strategy to be price competitive and provide an improved customer experience resulted in market share gains in a weaker-than-expected consumer electronics market.”