Best Buy Co. Inc. BBY,
is adjusting its business to meet the new consumer online shopping habits brought by COVID-19, including a plan to close more than 20 stores this year, and possibly many more in the years to come.
Chief Executive Corie Barry said on the company’s fourth quarter earnings conference call that the consumer electronics retailer has closed about 20 large format stores in each of the past two years, and the company expects to “close a number higher this year “.
The company has about 450 lease contracts for renewal over the next three years, about 150 each year. Barry said there will be “higher limits on rental renewals as we evaluate the role that each store plays in its market,” according to a FactSet transcript.
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Even as Best Buy evaluates which stores to keep, the company plans to renovate the locations to help fulfill orders for its thriving online business.
Best Buy reported a comparable increase in online sales of 89.3%, and almost two-thirds of online revenue was obtained in the store or on the sidewalk, dispatched from a store or delivered by a store employee.
“In the fourth quarter, the pandemic led to a reduction of around 15% in traffic to our stores, including both shoppers in the stores and customers taking online orders at the store or at the curb,” said Barry.
“And while some traffic is likely to return to our store channel in fiscal 2022, like many retailers, we believe that much of what we saw last year will be permanent.”
During the quarter, around 340 stores, around 35% of locations, were used to manage 70% of items shipped from the store. The company plans to use a smaller group of stores as hubs for this activity in the future.
And Best Buy is planning to reduce the sales area in a portion of these stores and install “packaging for depot” equipment.
The company is also testing alternative layouts in the Minneapolis market.
The changes in the business also extend to the staff. While the company announced bonuses for hourly workers in the coming weeks, the company laid off 5,000 workers this month, most of whom worked full-time.
To see: Best Buy says it laid off 5,000 employees this month
The company plans to add 2,000 part-time workers.
“In the past year, thousands of employees who have unique skills have been leveraged in various areas of our business, such as virtual sales, chat, phone and remote support,” said Barry.
Best Buy started the fiscal year 2021 with 123,000 employees and ended with 102,000, a 17% reduction. Barry said that most of these reductions were a result of attrition.
“In our opinion, with a reduction of -20% year-over-year in the number of employees in early February, there is the potential for even lower SG&A growth in 2021, with discretionary spending on technology investment and the company’s health business as an important variable, ”wrote Wedbush Analysts.
“A broader image, reducing and reconfiguring the company’s workforce and repositioning its properties is the key to our illustrative example of ~ $ 90 million in occupancy savings and ~ $ 500 million in labor savings that could increase the EPS by ~ 30%. ”
Wedbush values Best Buy shares as outperforming with a target price of $ 135.
“In the future, we believe there will be questions about the sustainability of margins as sales growth slows and online sales remain high,” wrote UBS analysts.
“Although we think it is taking the necessary steps to align its store operating model with a more digital future. Notably, we believe that the consumer electronics category is at risk of reduced demand and regressions in share in the portfolio as we tend to reopen.
UBS values Best Buy’s shares as neutral, with a price target of $ 120.
Raymond James downgraded Best Buy shares to outperform strong buying performance based on challenging valuations and comparisons. But analysts remain optimistic about the retailer.
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“[W]We believe that Best Buy is increasingly becoming an FY23 story (CY22) as productivity gains from closing stores and service efficiencies along with greater revenue potential in the higher margin services business begin to occupy the center of the stage, ”wrote analysts led by Bobby Griffin.
“We continue to firmly believe that innovation in consumer technology and telehealth should accelerate further after the impact of COVID-19 – increasing the inherent value of Best Buy’s products and services in the long term.”
Raymond James lowered his target price from $ 150 to $ 120.
Best Buy’s shares fell 2.1% on Friday’s trading session, but were up 22.6% last year. The S&P 500 SPX benchmark,
rose 22.9% in the last 12 months.