Best Buy eyes layoffs, slows U.S. expansion
No. 1 electronics seller says it may be forced to lay off some corporate employees amid 'historic slowdown in economy.'
NEW YORK (CNNMoney.com) -- Best Buy Co. announced Tuesday that a worsening sales environment could force it to lay off employees and significantly slow its new store openings in the United States.
Minneapolis-based Best Buy (BBY, Fortune 500), the No. 1 electronic seller, said it had already informed "nearly all" of its 4,000 corporate employees on Monday that they are eligible for a voluntary separation package in order to reduce its corporate expenses.
The company said the voluntary package provides an incentive for employees who choose to leave the company by offering a "significant increase in" the company's base severance offer.
However, Best Buy also stated that layoffs of corporate staff may be required, depending on the outcome of the voluntary program. The company's CEO Brad Anderson and people who report directly to him would not be eligible for the voluntary separation plans.
"We view our employees as the primary strength of this organization," Anderson said in a statement Tuesday. "However, based on the recent changes we've seen in consumer behavior and the potential for worsening consumer spending, we need to prepare our organization to operate in a wide range of potential macro economic scenarios in the coming year."
Additionally, the company said it would reduce its capital spending by about 50% next year, including a substantial reduction in new store openings in the United States, Canada and China.
"The historic slowdown in the economy and its effect on our business over the past 90 days have been the most challenging consumer environment our company has ever faced," said Anderson. "We believe that there has been a dramatic and potentially long-lasting change in consumer behavior as people adjust to the new realities of the marketplace.
To his point, the company also reported third-quarter profit Tuesday that topped analysts' estimates but was dramatically lower than a year ago.
The retailer logged profit of 35 cents a share, excluding a one-time impairment charge in the quarter. That was down from 53 cents a share a year ago.
Revenue was $11.5 billion, up from $9.9 billion a year earlier. Analysts had forecast a profit of 24 cents for the quarter on sales of $11 billion, according to Thomson Reuters.
The company said the reduction in its third-quarter earnings was due in large part to a non-operating impairment charge of $111 million, or 22 cents a diluted share. It was related to a "significant and sustained decline" in the market price of the company's nearly 3% stake in the common shares outstanding of The Carphone Warehouse Group PLC (CPW).
Although strong sales on Black Friday, the day after Thanksgiving, helped prop up sales and profit in the quarter, same-store sales declined 6.3% in the quarter.
Same-store sales, or sales at stores open at least a year, are a key gauge of a retailer's overall health.
The company said the same-store sales decline reflected a decrease in customer traffic.
In the United States, Best Buy said it logged strong sales of notebook computers and mobile phones but sales fell for digital cameras, projection and tube televisions, major appliances, music and movie products.
Overall, the company said its consumer electronics unit, which represented 39% of its third-quarter revenue, posted a 13.7% same-store sales decline, driven by double-digit percentage declines in digital cameras, MP3 players and GPS products.
Its services category, which includes the Geek squad installation and repair services, accounted for 6% of third-quarter revenue and logged a 1.3% same-store sales gain.