Best Buy Earnings Call NUGGETS: Domestic Business, Cost Structure

On Tuesday, Best Buy Co Inc (NYSE:BBY) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Domestic Business

Alan Rifkin – Barclays Capital: I guess if I am familiar, just one question is kind of a philosophical one. So if your domestic business essentially came in line with your expectations and Europe on a sequential basis actually improved. I guess I am trying to understand why are you suspending your official earnings guidance as well as the share buyback program is it a function of greater uncertainty in the marketplace or is the potential I missed it Joly will have a different strategic plan for the second half which may impact your earnings and your buyback activity.

A Closer Look: Best Buy Earnings Cheat Sheet>>

Jim Muehlbauer – EVP, Finance and CFO: Two things first of as we talk about the domestic business being in line with our first half expectations. As we discussed we were over our planned expectations in Q1 in our domestic business. The business started to soften from an industry standpoint in Q2. When I put the two quarters together we’re basically inline. Looking forward as we talked about on the call we certainly have a lot of variability in how the year is going to play out from a consumer demand standpoint, especially with the key product launches we see in the back half of the year. You know, candidly the visibility to the magnitude of the impact to those launches is very variable at this point of time, especially given the concentration of sales we have over the holiday season. That coupled with giving Hubert some time to come in and understand the business and assess where he wants to take the organization long-term. We believe that the best thing to do in light of those two circumstances is to give him the flexibility, which basically resulted in us deciding to take guidance away for the balance of the year. We need to give him a chance to digest what’s happening in the business model.

Alan Rifkin – Barclays Capital: So should we expect here on your third quarter if not before a detailed strategic plan from Mr. Joly as to where he wants to take your business going forward?

Mike Mikan – Interim CEO: I don’t want to get ahead of Hubert and his digestion of all the work that we’ve been doing and the impact that he will choose to take, but I can assure you that Hubert is a decision maker, he is action oriented, and he will come to the marketplace as appropriate. So he’ll hit the ground running and take on all the great work that has been done over the last several months.

Cost Structure

Greg Melich – ISI Group: I want to focus on the margin trends Jim versus your plan. You said SG&A in particular can a little better than expected getting some cost up faster. Could you (tell us) what those costs were and if we think this rate that you’ve done the down 2% can be maintained?

Jim Muehlbauer – EVP, Finance and CFO: Greg, as you know from the beginning of the year we put plans in place to dramatically lower our cost structure. We made several of those moves starting at the end of last year into Q1 around some of the organizational changes we made in our operating model both in our corporate offices and our field locations. We’ve also been trimming back expenses in a variety of areas of the business so that we can make sure that we fund the important investments around the growing and profitable parts of the portfolio, especially in our Best Buy Mobile business and our service business. So, the good news is that we continue to invest in those businesses and as you saw from our results in the second quarter, we continue to see strong growth in our services business and in our phone business and we’re investing SG&A behind that. We continue to expect to take cost out as we go throughout the year. Our plans for the year are actually more bullish on the amount of cost that we can take out and we’ve kind of reflected that in our forward-looking view as well. Candidly, we’ve got a lot of work to do in the long-term in taking costs and rightsizing the business to the opportunities you see going forward. So, we still certainly believe that what we’re doing in FY ’13 is just a good start on those fronts. There’s more opportunity to take costs out for the long-term.

Mike Mikan – Interim CEO: Greg, it’s Mike. I will also suggest that as we go forward, reflecting the actions that we – the aggressive actions we’re starting to take with our cost structure in terms of our store portfolio on footprint, we also want to be looking at store productivity and revenue per square foot and seeing that improve and you started to see that this quarter with an improvement of 1%. It’s slightly up but our intention is to demonstrate that improvement over time.

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