Best Buy Co. Inc. BBY,
is adapting its operations to meet new consumer online shopping habits as a result of COVID-19, including a plan to close more than 20 stores this year, and possibly many more in the coming years.
Chief Executive Corie Barry said during the company’s fourth-quarter earnings call that the consumer electronics retailer has closed approximately 20 wide-format stores in the past two years and that the company will “close a higher number” this year.
The company has about 450 leases to be renewed over the next three years, about 150 per year. Barry said there will be “higher barriers to renewing leases as we evaluate the role each store plays in its market,” said a transcript from FactSet.
Read: The National Retail Federation predicts retail sales growth in 2021 of between 6.5% and 8.2% as the COVID-19 vaccine continues to roll out
Even as Best Buy is evaluating which stores to keep, the company has plans to revamp locations to help fulfill orders from its thriving online business.
Best Buy reported a comparable online sales increase of 89.3%, and nearly two-thirds of online sales were collected in-store or on the street, shipped from a store, or delivered by a store associate.
“In the fourth quarter, the pandemic reduced traffic to our stores by approximately 15%, including both shoppers and customers picking up online orders through in-store or curbside,” said Barry.
“And while some of the traffic is likely to shift back to our retail channel in fiscal 2022, like many retailers, we think much of what we saw last year will be permanent.”
During the quarter, approximately 340 stores, approximately 35% of locations, were used to manage 70% of the 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 plans to downsize the sales floor in some of these stores and install “warehouse packaging” equipment.
The company is also testing alternative layouts in the Minneapolis market.
The changes in the business also extend to personnel. While the company announced bonuses for hourly workers in the coming weeks, the company fired 5,000 employees this month, the majority of whom worked full-time.
See: Best Buy says it laid off 5,000 workers this month
The company plans to add 2,000 part-time workers.
“Over the past year, thousands of employees with unique skills have been deployed in multiple areas of our business, including virtual sales, chat, phone support and remote support,” said Barry.
Best Buy started fiscal year 2021 with 123,000 employees and ended with 102,000, a reduction of 17%. Barry said most of these reductions were due to attrition.
“In our view, with a -20% year-over-year headcount reduction of -20% in early February, there is potential for even lower SG&A growth in 2021, with discretionary capital expenditures in technology and the company’s health operations a significant variable, ”wrote Wedbush analysts.
“Getting a bigger picture, reducing and reconfiguring the company’s labor and repositioning the property are key to our illustrative example of ~ $ 90 million in occupancy savings and ~ $ 500 million in labor savings driving earnings per share. can increase by ~ 30%. “
Wedbush rates Best Buy stock as an outperformer with a price target of $ 135.
“Going forward, we think there will be questions about margin sustainability as revenue growth slows and online sales remain high,” UBS analysts wrote.
“Although we think it is taking the necessary steps to align its retail business model with a more digital future. In particular, we think the consumer electronics category is at risk of pushing demand forward and cutting share as we lean towards reopening. “
UBS rates Best Buy stock as neutral with a price target of $ 120.
Raymond James lowered the value of Best Buy stock to outperform a strong buy based on valuation and challenging comparisons. But analysts remain optimistic about the retailer.
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[W]We believe Best Buy is increasingly becoming an FY23 (CY22) story as productivity gains from store closings and fulfillment efficiency, along with increased revenue potential in the higher margin service business, takes center stage, ”wrote analysts led by Bobby Griffin.
“We remain firmly convinced that innovation in consumer technology and telecare should accelerate further following the impact of COVID-19 – enhancing both the products and services inherent in Best Buy over the long term.”
Raymond James lowered his target price from $ 150 to $ 120.
Best Buy shares fell 2.1% during Friday trading, but are up 22.6% over the past year. The benchmark S&P 500 index SPX,
is up 22.9% in the last 12 months.