Best Buy Co. Inc. apparently told about 2,000 managers around the United States on Wednesday that they were being laid off, a move that would be the company’s biggest job reduction since July 2012 as it continues to cut costs following a weaker-than-expected holiday season.
The layoffs will affect about 1.4 percent of Best Buy’s 145,000-person workforce, the Star Tribune learned. The news came a day before the company’s scheduled announcement of fiscal fourth-quarter results. The Richfield-based electronics retailer is expected to report a profit of about $1 per share, a reversal from a loss of $1.21 a share a year earlier.
But Best Buy executives began facing questions about the sustainability of the company’s recovery after issuing its holiday sales results last month, in which it disclosed that sales at stores open for at least a year fell 0.9 percent during a nine-week period from November to early January. Investors and analysts were expecting a small gain in same-store results.
At the time, Best Buy Chief Executive Hubert Joly called the performance a “speed bump” and reiterated previous statements that the company’s “transformation” was in its early stages and would take a long time. “It doesn’t change the overall story,” Joly said.
However, he also said the company would accelerate its effort to lower costs. And in a first step in that direction, Best Buy in late January cut about 950 jobs in Canada, about 6 percent of its workforce there.
The layoff on Wednesday was first reported by the New York Post, which cited an anonymous source and reported that “affected workers are mostly in middle management.” Best Buy declined to comment.
The report gave a small jolt to Best Buy stock, which closed up 2 percent to $25.82 though still well below the 2013 peak of $44.33 seen in mid-November. Best Buy shares nearly tripled in value last year, one of the biggest gainers in the S&P 500.
“The magnitude of the reduction is not a surprise, but the nature of the cuts surprised me,” said Michael Pachter, an analyst with Wedbush Securities in Los Angeles. “I was not expecting to see only store managers cut.”
The most recent big job cut at Best Buy came in the summer of 2012, when it announced 2,400 layoffs in a single day. The company through that year closed 53 of its approximately 1,100 stores. Joly has said he doesn’t anticipate store closings to be part of the current effort to lower costs.
Best Buy for much of last year engaged in small-scale cuts at the Richfield headquarters, actions that became known as “Termination Tuesdays” because they often happened on that day of the week. In bigger moves, it laid off 400 corporate workers last February and another 400 in 2012. Employment at the headquarters stands around 5,000, well below a peak of 9,000 in the mid-2000s.
Analysts tend to measure Best Buy’s cost structure against its cyberspace competitor, Amazon.com, which has made a major push into electronics in recent years.
“To us, the key to BBY’s success is its ability to cut costs in order to fund its lower gross margin to stay competitive with Amazon,” Deutsche Bank analyst Mike Baker wrote in a research note last week. “This way, they should maintain or even increase market share, while driving higher earnings power.”