Retailer Best Buy suffers from retreating value of its stake in Carphone Warehouse
Wednesday 17 December 2008
Best Buy's third-quarter profits have taken a $100m hit to reflect the tumbling value of its near-3 per cent stake in Carphone Warehouse, as the retail giant revealed that it is to slash jobs and capital expenditure amid the "most challenging environment" it has ever faced in the United States.
The world's largest electricals retailer has taken a non-operating impairment charge of $111m (£72.5m) related to the "significant and sustained decline in the market price" of its 2.9 per cent stake in Carphone Warehouse, the UK-based mobile and communications retailer, which it purchased in December 2007. The impairment charge dragged Best Buy's net income down by 77 per cent to $52m for the third quarter to 29 November.
The writedown is separate to Best Buy Europe, the US electricals giant's joint venture with Carphone Warehouse, which will launch its first store in the UK next year as part of its wider plans to establish a chain of big-box electricals stores across Europe. In May, Best Buy said it was investing £1.1bn to acquire half of Carphone Warehouse's retail business, in an attempt to conquer the European retail electricals market.
Best Buy said its total third-quarter revenues, including Best Buy Europe, jumped by 16 per cent to $11.5bn, but it warned of dreadful trading conditions in the US. When the sales of Best Buy Europe are stripped out, its third-quarter sales "declined modestly" compared with the same period last year. Best Buy's overall like-for-like sales declined by 5.3 per cent over the quarter.
Brad Anderson, the chief executive of Best Buy, said: "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."
He added: "We believe that there has been a dramatic and potentially long-lasting change in consumer behaviour as people adjust to the new realities of the marketplace... Yet we clearly recognise that these changes require us to make significant adjustments to our present cost structure."
Best Buy is to slash its capital expenditure by about 50 per cent next year, including a substantial reduction in new store openings in the US, Canada and China. Best Buy is offering "nearly all" its head office employees voluntary redundancy. However, the company also said that compulsory redundancies among corporate staff may be required.
Best Buy's rival Circuit City filed for bankruptcy protection last month.
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