Shares of U.S. electronics giant Best Buy Co. Inc. (NYSE:BBY) soared 12.57% August 25, thanks to unexpectedly strong sales and profit in the U.S. as well as a strong outlook. That made it the best performer in the S&P 500.
The company’s Canadian subsidiary, Burnaby-based Best Buy Canada, however, was a drag on the company’s business.
Best Buy does not specifically break out Canadian sales but it reports on its international division, which is now almost exclusively Canadian.
Sales in that division fell 25.6% to US$650 million in the quarter, which ended August 1, compared with US$874 million in the same quarter a year ago.
“In the international business, revenue declined due to store closures and foreign currency,” Best Buy CEO Herbert Joly said on an August 25 conference call to discuss the second quarter.
Canada is essentially the company’s entire international division given that Best Buy completed the sale of its business in China in February.
The company stopped operating in the U.K. in 2012.
Joly said that the retailer has seen higher-than-expected customer retention in Canada despite permanently closing 66 Future Shop stores across the country.
“We're now in the midst of converting the remaining 65 Future Shop locations to the Best Buy brands,” he said. “And much of the work in investments around building a superior multi-channel customer experience are still ahead of us.”
Overall, Best Buy’s second quarter sales were US$8.528 billion, up about 0.8% from US$8.459 billion in the same quarter a year ago and surprising analysts who had expected a dip in total sales.
“Total revenue growth was fairly anemic, but a 0.8% increase is a marked improvement on the 0.9 decline seen last quarter,” said Neil Saunders, who is CEO of the retail analysis firm Conlumino.
“Away from stores, online also performed well during the quarter with an increase in sales of 17%, a marked improvement on the 5.3% growth recorded during the first quarter,” he said. “We are encouraged by the investments Best Buy has made to create a seamless omni-channel operation, particularly in regard to in-store pickup which makes in-store inventory available to online shoppers.”
Iranian immigrant to Vancouver, Hassan Khosrowshahi, founded Future Shop in 1982 and expanded it into a chain of more than 100 stores before selling it to Best Buy for $580 million in 2001.
Best Buy then kept that brand even as it started opening Best Buy-branded stores across Canada.
Recent years have been fraught with layoffs and store closures in Canada.
CFO Sharon McCollam, who was also on the conference call, did not sound optimistic about the Canadian division.
“We are expecting an international revenue decline of approximately 30% and an international non-GAAP operating income rate in the range of negative 2.5% to negative 3.5%,” she said.
