Best Buy may cut costs

Nickalas Tabbert

You may want to cover your eyes if you're a Best Buy fan.

The Richfield-based retailer may unveil plans Thursday to cut costs as it struggles to boost profits and recapture market share from competitors.

At least two analysts predict Best Buy will announce a more aggressive restructuring strategy that could include store closings, relocating to smaller retail spaces, subletting existing stores and layoffs, the Star Tribune said.  Best Buy is expected to report its fourth-quarter earnings Thursday at 7 a.m.

A Best Buy spokeswoman did not respond to a request for a comment, the Tribune said.

The electronics retailer previously told investors that it wanted to reduce its U.S. square footage footprint by more than 10 percent over the next three to five years.  Janney Capital Markets analyst Dave Strasser says the company may go further.

"We anticipate a more aggressive approach than that as the environment changes," he wrote.  "This will probably improve profitability and margins.  We have to believe that management has seen the impact that this type of action had on the shares"of Lowe's and Home Depot.

Best Buy stocks have already benefited from the reported restructuring index, the Tribune said, jumping nearly 11 percent since mid-March.

A major restructuring plan could help better shape Best Buy's image, said Michael Lasser, a UBS analyst.

"We think a bold step such as this would change the narrative on the story, and the debate would turn to whether or not it can work," Lasser wrote.

Fighting for market share usually means discounting and smaller profits, the Tribune said.  If that is true, Best Buy might need to subsidize its price cuts with cost savings from store closings and layoffs, analysts say.

Best Buy wants to accelerate its digital sales, however, and last month hired former Starbucks chief information officer Stephen Gillett to oversee its digital operations.  The area is one of the company's fastest-growing businesses but is a relatively small unit compared to revenue from the company's physical stores, the Tribune said.