Electronics giant Best Buy’s latest earnings report was surprisingly strong, but one area proved to be a drag on the company’s numbers: Canada.
The company’s international division, which consists of Canada and a handful of locations in Mexico, recorded a 25.6-per-cent decline in revenue, to US$650 million, Best Buy reported Tuesday. The company says it lost $0.02 per share on its Canadian operations in the second quarter of the fiscal year.
And Best Buy expects things to get worse before they get better, projecting another 30-per-cent decline in Canadian revenue.
Sharon L. McCollam, the company’s chief financial officer, told reporters on an earnings call that this was due to several factors, including “softness in the Canadian economy and Canadian consumer electronics industry.”
Another reason was what Best Buy described as a 12-per-cent drop in the value of the Canadian dollar, which translates into lower earnings as the Minnesota-based company reports in U.S. dollars.
That reflects an ugly reality for multinational retailers operating in Canada today: As the loonie drops, they are seeing carnage in Canadian earnings numbers, even as overall retail sales volumes in Canada remain relatively strong.
But the company also suffered declining sales due to its decision earlier this year to shutter 66 Future Shop stores, and consolidate its remaining 65 Future Shops under the Best Buy brand.
Still, CEO Hubert Joly noted that the chain is seeing “higher than expected retention” at its remaining locations — meaning sales didn’t drop off as badly as Best Buy had predicted.
“We're now in the midst of converting the remaining 65 Future Shop locations to the Best Buy brands,” he said on the earnings call. “And much of the work in investments around building a superior multi-channel customer experience are still ahead of us.”
The company’s U.S. numbers were a stark contrast to the Canadian performance, with revenue south of the border rising 0.8 per cent and same-store sales rising 2 per cent. Analysts had expected a revenue decline of around 2 per cent.
The company cleared US$164 million in profit, or $0.42 per share.
Best Buy has been in Canada since 2002, when it opened its first store in Mississauga, Ont. It bought Burnaby, B.C.-based Future Shop a year earlier.
The company expects to have a total of 192 locations in Canada once the switchover of Future Shop locations is complete. There will be 136 large-format stores and 56 Best Buy Mobile stores.
Faced with a shaky global economy and competition from online retail, Best Buy’s global footprint has been shrinking. The company pulled out of the Chinese market in 2011.
The company had a misadventure entering the U.K. market similar to Target’s failed entry into Canada. Best Buy opened 11 locations in the U.K. starting in 2010, but shut them all down before the end of 2011, blaming online retail and a soft British economy.
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