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Best Buy loses two execs; further reduces earnings estimates

updated 11:30 pm EDT, Wed October 24, 2012

Beleaguered company awaits Schulze's purchase offer

Electronics retailer Best Buy has issued a warning that earnings and same-store sales would be less than expected for its third quarter. Compounding the losses, U.S. business president Mike Vitelli will depart the company at the end of the fiscal year with a lump-sum payment of $1.45 million, and the executive vice president of U.S. operations, Tim Sheehan, will leave the company at the end of October.

BB&T Capital Markets analyst Anthony Chukumba believes that "the one thing that Joly does not have is retail experience. So you would think that he would really kind of lean on Vitelli." Chukumba added that "you start to wonder, 'Are the wheels kind of coming off here?'"

Best Buy shares fell to $15.77 in after-hours trading from a $16.92 close at the end of business prior to the announcement on the New York Stock Exchange. The company also said Wednesday that it would hold an investor day on November 1 to discuss Joly's plans for the future.

Best Buy has commenced a plan to save $800 million by its fiscal 2015 that would see it close 50 of its "big-box" stores during its fiscal 2013, which started at the beginning of March. The retail chain expected these and other cost savings to cut $250 million in 2013 and $300 million in costs just in retail by the 2015 target.

Other focus shifts in an attempt to save money include fewer large-screen televisions stocked, a reduction in the DVD and CD aisles, and an increase on tablets, e-readers, and mobile phones, emphasizing Best Buy's existing strengths in marketshare over its competitors. The alterations in strategies are an attempt to to lure in customers, reversing a downward trend of store visits. Shoppers today visit Best Buy twice a year on average, rather than 10 times a year as they did a decade ago.

The company's earnings forecasts have been cut for the entire fiscal year. The prediction is not expected to be updated for the rest of the year. The last quarter of 2012 is historically responsible for up to 40 percent of an electronics retailer's profits, with this year driven by the release of Windows 8 and the expected increase in PC sales, the iPhone 5, and generally strong holiday season video game releases.

Best Buy founder and ex-CEO Richard Shulze and at least four private equity firms have started reviewing the financial data of the beleaguered chain in the first steps toward would could wind up being a $11 billion buyout. Schulze is negotiating with the equity firms to determine how much of his 20 percent stake in the company he would have to shell out in a bit and what role he would fill after the takeover.

By Electronista Staff
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