(Reuters) - Electronics retailer Best Buy Co Inc (BBY.N) - its share price near a nine-year low - suspended profit forecasts and share buybacks for the rest of the year on Tuesday to give its newly named chief executive time to construct his own turnaround plan.
The moves came in tandem with weaker-than-expected quarterly earnings and underlined the challenges facing Hubert Joly in reviving the company, the world’s largest consumer electronics retailer.
Adding to the company’s woes was surprisingly weak demand for electronics in key markets, particularly China where retailers have been hit by the country’s slowest economic growth in three years.
“The clock is ticking on this one. He doesn’t have the liberty of taking time to get to know the business model intimately,” said Stacey Widlitz, president of consulting firm SW Retail Advisors, referring to Joly. “Investors are impatient, and the last thing you want to do is make vendors impatient.”
Best Buy cut its fiscal year earnings forecast without giving a figure and said it did not expect to further update its outlook for the year.
BB&T Capital Markets analyst Anthony Chukumba said it was a “little bit jarring” to see the company withdraw its profit outlook, especially since he expects industry fundamentals to improve, driven by the upcoming debuts of Windows 8, the iPhone 5, the Nintendo Wii U video game console, and a stronger videogame title release schedule.
Critics have complained that Best Buy has become a showroom for Amazon.com Inc (AMZN.O) and other online retailers as shoppers go to its stores to check out electronics like high-definition televisions, then buy them elsewhere for less.
Ending the practice of showrooming is a top priority, Best Buy said in June.
The company has also said it is working to improve its online business and wants to reduce retail square footage further than a March plan to close 50 of its 1,100 large U.S. stores. Many investors were looking for deeper cuts to turn around the chain.
Best Buy’s troubles have been exacerbated by the abrupt exit of CEO Brian Dunn due to an ethics probe.
The company is also fending off takeover interest from founder and largest shareholder Richard Schulze, who was forced out as chairman after an internal probe found he did not inform the board of allegations that Dunn was having an inappropriate relationship with a female employee.
Best Buy shares closed down 1.4 percent at $17.91 on Tuesday after sinking to a nine-year low of $16.25 earlier in the session, extending losses made on Monday following the announcement of new CEO Joly. Joly has headed hospitality and travel company Carlson but lacks retail experience.
In addition, takeover talks with Schulze deteriorated over the weekend.
Best Buy late on Tuesday said Joly will receive a base salary of $1.175 million. He will also be eligible to receive a yearly cash bonus with a target rate of twice his base salary and significant stock awards.
Joly will also receive cash, stock and options worth up to $20 million over a three year period as compensation for benefits he left behind at Carlson.
If Best Buy sells itself, Joly could be eligible to receive a severance payment worth at least twice his base salary and target bonus.
Sales at stores open at least 14 months fell 3.2 percent in the company’s fiscal second quarter, ended August 4, the eighth decline in the last nine quarters. Same-store sales were down 1.6 percent in the United States and 8.2 percent internationally.
“China was even worse than Europe,” Janney Capital Markets analyst David Strasser said, adding he had expected only a 3 percent drop for the international business.
“We’re seeing continued weakness in the China consumer electronics market that appears to be consistent across major competitors,” Best Buy Chief Financial Officer Jim Muehlbauer said.
Best Buy owns Five Star, which has 204 stores in China. It tied the weakness in China to lower consumer spending, weakness in the housing market and the expiration of government-sponsored rebate programs for appliances, which have hurt scores of home-grown Chinese consumer-facing companies.
GOME (0493.HK), China’s No. 2 appliance retailer, and bigger rival Suning (002024.SZ), seen by some as China’s answer to Best Buy (BBY.N), have joined a raft of companies to report or flag weak earnings.
Best Buy’s net income fell to $12 million, or 4 cents a share, in the second quarter, from $150 million, or 39 cents a share, a year earlier. Excluding restructuring charges, it earned 20 cents a share, well short of the 31 cents expected on average by analysts, according to Thomson Reuters I/B/E/S.
Sales dropped 3 percent to $10.55 billion; analysts had estimated $10.63 billion.
The company, which bought back $122 million worth of shares in the quarter, said it has suspended repurchases for the current year as it goes through the transition to a new CEO.
Additional reporting by Martinne Geller in New York and Donny Kwok in HONG KONG,; Editing by Maureen Bavdek, Lisa Von Ahn, Jeffrey Benkoe and Edwina Gibbs