Yahoo Finance Why Best Buy is eyeing many more store closures
Despite a ton of cash on its balance sheet and profits riding high a year into a pandemic that has spurred epic tech gadget buying, even mighty Best Buy (BBY) realizes it has to slim its store base down further to position for the future of accelerated digital consumption.
"As we look to the near-term, there will be higher thresholds on renewing leases as we evaluate the role each store plays in its market, the investments required to meet our customer needs, and the expected return based on a new retail landscape. For context, we have approximately 450 leases coming up for renewal in the next 3 years, or an average of 150 each year," pointed out Best Buy CEO Corie Barry on an earnings conference call Thursday.
Continued Barry, "As part of the review process, we have closed approximately 20 large format locations each of the past two years, and expect to close a higher number this year. We have also been reducing the length of our average lease term, which will continue to provide us flexibility.
Best Buy ended 2020 with 1,159 stores in the U.S., Mexico and Canada. That's down from a peak of 1,779 in 2014.
Best Buy's looming store closures likely reflects the changes the pandemic has caused to shopper behavior. Consumers are not only shopping more online for the convenience, but also opting to pick up orders in Best Buy parking lots. All of that means less of a need to operate a large format Best Buy store that may be underperforming given the costs to operate said store.
"In addition to our physical stores, our operating model needs to evolve to meet our customers changing shopping behaviors that have been accelerated by the pandemic. The sudden and lasting shift customers have made to shopping more regularly and seamlessly across all of our channels, has forced us to look at how we get our work done," Barry explained.
Best Buy's decision on stores comes after a mixed holiday quarter.
Net sales of $16.94 billion came in short of analyst estimates for $17.23 billion. Domestic same-store sales rose 12.4%, missing analyst projections for a 14.9% increase. Domestic online sales surged 89.3%, showing a further slowdown from the third and second quarters. Adjusted earnings of $3.48 a share beat estimates by 3 cents.
For the full year, Best Buy forecast a continued sales slowdown as people get vaccinated and return to taking trips and dining out. Best Buy sees 2021 enterprise same-store sales to decline 2% to increase 1%.
Best Buy shares fell 9.2% on the news.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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