Best Buy Inc CEO sets goals

Nov 15 2012, 10:31 IST
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SummaryBest Buy Co Inc is aiming to achieve operating margin of 5% to 6% over time.

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 percent to 15 percent, in addition to a 5 percent to 6 percent adjusted operating margin target.

On a comparable basis, its operating margin in the last fiscal year was 4.7 percent. Over the past four quarters, the margin was 4.2 percent.

Joly said a mixture of excessive costs and price competition hurt margins, and that the retailer would turn to a wider variety of higher-margin, private-label products to boost results. One example is the company's own Insignia-brand electronics.

Best Buy has been struggling to combat a phenomenon known as showrooming, where people visit its stores to look at products and then buy them online for less.

Joly acknowledged the company has suffered from a price perception issue among customers that it needed to address, as well as weakness in its online operations.

The head of the company's digital business said its online conversion rate - which measures how successfully Best Buy translates customer visits into actual sales - was only about half of what it should be.

Many of these problems are a result of our own making, Joly said during the investor presentation.

HOLIDAYS COMING

Best Buy also said on Tuesday that it would pursue 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. In late March, the company said it would close 50 large U.S. stores.

Joly warned that merely closing stores would not boost operating income, as most of the big-box stores are already profitable. Relocation to smaller space may be an option, however; he said 71 percent of the large-format stores have leases expiring within the next six years.

The details of Joly's long-awaited plan came roughly a week before the unofficial start of the year's biggest selling season.

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.

I am already sick and tired of negative comps, Joly said, referring to same-store sales figures.

The CEO also admitted a number of past investments have not paid off and promised the new leadership would be prudent about that in the

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