Best Buy Co. Inc. BBY,
adapts its business to meet the new online shopping habits of consumers, brought by COVID-19, including a plan to close more than 20 stores this year and probably many more in the coming years.
CEO Corie Barry said in the company’s fourth-quarter earnings call that the consumer electronics retailer has closed about 20 large-format stores in each of the past two years, and the company expects “To close a larger number this year.”
The company has about 450 leases to be renewed over the next three years, about 150 each year. Barry said there will be “higher thresholds for renewing leases as we assess the role each store plays in its marketplace,” according to a FactSet transcript.
Read: The National Retail Federation predicts an increase in retail sales in 2021 between 6.5% and 8.2%, as the COVID-19 vaccine continues to be launched
Even though Best Buy evaluates the stores it needs to maintain, the company intends to reorganize locations to help fulfill orders from its thriving online business.
Best Buy reported a comparable increase in online sales of 89.3%, and nearly two-thirds of online revenue was picked up in-store or on-board, shipped from a store or delivered by a store employee.
“In the fourth quarter, the pandemic led to a 15% reduction in traffic to our stores, including both in-store shoppers and customers who take orders online through the store or on board,” Barry said.
“And while some traffic will move back to our store’s channel in fiscal year 2022, like many retailers, we believe much of what we saw last year will be permanent.”
During the quarter, about 340 stores, about 35% of locations, were used to handle 70% of the items delivered from the store. The company plans to use a smaller group of stores as hubs for this activity in the future.
And Best Buy also plans to reduce the sales floor in a portion of these stores and install “quality packaging for warehouse” equipment.
The company is also testing alternative aspects in the Minneapolis market.
Business changes extend to staff. While the company announced bonuses for hourly workers in the coming weeks, the company laid off 5,000 workers this month, most of whom worked full-time.
See: Best Buy says it laid off 5,000 employees this month
The company intends to add 2,000 part-time workers.
“In the last year, thousands of employees with unique skills have been leveraged in several areas of our business, such as virtual sales, chat, telephone and remote assistance,” said Barry.
Best Buy started fiscal year 2021 with 123,000 employees and ended with 102,000, a 17% discount. Barry said most of those cuts were the result of wear and tear.
“In our opinion, with a -20% year-on-year reduction in employees at the beginning of February, there is potential for even lower SG&A growth in 2021, with the company’s discretionary technology investment and health spending being a key variable, ”Wedbush Analysts wrote.
“A broader picture, the reduction and reconfiguration of the company’s workforce and the repositioning of its buildings are essential to our illustrative example of employment savings of ~ $ 90 million and labor savings of ~ $ 500 million, which could increase EPS by ~ 30%. ”
Wedbush values Best Buy shares as they exceed a target price of $ 135.
“In the future, we believe there will be questions about margin sustainability as sales growth slows and online sales remain high,” UBS analysts wrote.
“Although we believe that it is taking the necessary measures to align its store operating model with a more digital future. In particular, we believe that the category of consumer electronics products is exposed to the risk of demand withdrawal and portfolio regression as we move towards reopening. ”
UBS rates Best Buy shares as neutral, with a target price of $ 120.
Raymond James downgraded Best Buy to outperform strong buying based on provocative valuation and comparisons. But analysts remain optimistic about the retailer.
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“[W]I think Best Buy is increasingly becoming a FY23 (CY22) story, as productivity gains from store closures and delivery efficiency, along with higher revenue potential in the higher margin services business begin to take the central place “, wrote the analysts led by Bobby Griffin.
“We remain firmly convinced that innovation in consumer technology and telehealth should accelerate following the impact of COVID-19 – improving both the inherent value of Best Buy products and services over the long term.”
Raymond James reduced his target price to $ 120 from $ 150.
Best Buy shares fell 2.1% in Friday’s trading, but gained 22.6% in the last year. S&P 500 SPX Reference Index,
increased by 22.9% in the last 12 months.