After strong 4Q, Best Buy signals new cost-cutting phase

Best Buy Co. Inc. continued on its comeback trail Tuesday, posting a 77 percent increase in fourth-quarter profits and giving shareholders a one-time dividend spiff.

The Richfield-based company also extended a cost-cutting program to wring an additional $400 million out of the expense side of its ledger. The company said this would not involve job cuts.

Chief Executive Hubert Joly said the quarterly results "were better than expected" but cautioned that growth would be flatter in the coming year.

While Best Buy is making progress, industry observers say it is too soon to declare a successful turnaround.

"They certainly have stabilized it," said Dave Brennan, co-director of the Institute of Retailing Excellence at the University of St. Thomas. "But sales are still weak. They need to find some way to grow significantly, and they haven't yet."

The cost cuts the company announced mark phase two of a "Renew Blue" campaign that has cut costs by more than $1 billion since Joly took over the then-struggling company in the middle of 2012.

The goal for the second phase of the cost reduction program is $400 million. Joly told analysts in a morning conference call that the cost cuts would be gradual and structural in nature and would not involve employee layoffs. They will take place over the next three years.

Joly said in an interview Tuesday that Best Buy is already in a much better place than when he arrived.

Sales were down, competition from online retailers sapped market share and the big-box retailer's cost structure strangled the bottom line.

"We had a very full plate," Joly recalled. "We had an all-you-can-eat plate of ­challenges."

While challenges remain, Best Buy is a rejuvenated business. Its stock price has nearly tripled in the last two years and closed Tuesday at $39.18.

"Two years ago, we said there are two problems — declining margins and declining [same-store sales] comps," Joly said. "Today, we have fully improved comps and margins [and] that reflects a significant transformation. We have transformed the stores, our online business is materially up and we've developed new partnerships with our vendors.

"We're here to play offense," Joly added. "We're in it to win it."

Strong holiday sales of large-screen TVs and smartphones were credited for the fourth-quarter results. The electronics retailer also saw its comparable sales rise for the second consecutive quarter, a feat it hadn't accomplished for nearly five years.

Best Buy said it earned $519 million, or $1.48 a share. ­Analysts expected $1.36 a share.

A year ago, Best Buy earned $293 million, or 85 cents a share, for the three months ended Feb. 1. Adjusted for one-time costs and benefits, per-share earnings rose 23 percent.

Revenue was $14.2 billion, up 1.3 percent.

The results exclude the performance of its Five Star store chain in China, the sale of which closed on Feb. 13.

The company also said it would pay a one-time dividend to shareholders of 51 cents a share, chiefly from proceeds of a lawsuit related to flat-panel TV pricing, increase its regular dividend to 23 cents and resume a share repurchase program that was suspended in 2012.

Joly said Best Buy "capitalized on the product cycles in large screen televisions and mobile phones" to deliver better-than-expected results.

"These two categories were the primary drivers of our year-over-year revenue growth, and more than offset weakness in the tablet ­category, which was impacted by material industry declines," Joly said in a ­statement.

Best Buy executives continue to be cautious about improvements in 2015, citing limited visibility on new product launches and the normal deflationary price pressure on electronics goods.

Sharon McCollam, the company's chief financial officer, reiterated a previous forecast for a small drop in adjusted operating income during the first two quarters of the new year.

Nonetheless, the company executives expressed high hopes for its recently rolled-out wedding registry program, a personalized database for marketing and more customer service opportunities for its Geek Squad of electronic ­technicians.

"Fifteen years ago, most homes had a PC that was maybe connected to a computer or a fax. Now everything is connected. Homes have multiple networks, and they are complex to support," Joly told analysts. "We have an enormous opportunity to help in this area. We have this gift — 20,000 Geek Squad agents — getting into people's homes and work on making sure that services are marketed and sold."

David Phelps • 612-673-7269