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Best Buy CEO Sees Sales Growth Accelerating on New Services

Matthew Boyle

(Bloomberg) -- New Best Buy Co. Chief Executive Officer Corie Barry delivered a five-year plan that sees revenue and profitability improving by offering new services, expanding its e-commerce arm and moving into new areas like health care.

The company forecast revenue of $50 billion in 2024, which implies growth of about 3% annually over five years, according to Morgan Stanley. That would be an acceleration from 1.7% last year. Best Buy also expects to reduce costs by an additional $1 billion on top of the $2.1 billion it has saved over the past five years, it said in a statement Wednesday.

“The financial goals were better than we and the market were expecting,” Simeon Gutman, an analyst at Morgan Stanley, said in a note. “We were expecting a flattish margin outlook.”

Best Buy, whose stock was little changed on Wednesday, shared more details of its plan with investors in New York, the company’s first such event under Barry, who took the reins from Hubert Joly in June. Interest is high in the expansion of its fledgling health unit, which Morgan Stanley says could deliver as much as $46 billion in additional revenue over the next 10 to 20 years. The strategy ranges from selling fitness machines to sensor networks to help care for the growing population of aging Americans.

Best Buy said Wednesday it will serve five million seniors over the next five years, part of a broader goal to double the number of “significant customer-relationship events” like in-home sales consultations and annual tech support to 50 million.

Growth Initiatives

“The strategy is the right one and we are headed in the right direction,” Barry said in a presentation to reporters. “The question now is, where do we accelerate?”

Best Buy gave more details on new programs like total tech support, where customers can pay $200 a year to get help with any product they own, no matter where it was purchased. The service has 2 million paying members, about double the number in January. It also has an army of 600 salespeople who make free house calls to recommend products and services tailored to a customers’ needs. Those customers spend more with Best Buy and visit its stores more often, the company said Wednesday.

Remote monitoring of aging Americans, using unobtrusive sensor networks, is a market with “significant potential,” Best Buy said, and it’s already acquired several businesses in the space. The company plans to serve 5 million seniors in five years, up from about 1.1 million today.

Those new initiatives are expensive to ramp up but should deliver fatter margins than Best Buy’s core business of selling smartphones and TVs. The company forecast adjusted operating profit margins increasing to 5% in five years from 4.6% last year.

Analysts peppered Barry with questions about the health-care strategy, with some wondering aloud what Best Buy would bring to the table that’s unique while others tried to figure out how much revenue the company could generate for each sensor network it deploys.

Tariff Cloud

While Best Buy painted a rosy future, there are some clouds on the horizon. The retailer in August lowered the high end of its 2019 sales forecast, citing consumer “uncertainty” in the back half of the year. Growth in the consumer-electronics sector has been sluggish, although Barry said Wednesday that the industry is “more stable than often perceived.” The trade war with China will also make her job tougher, especially as Best Buy is among the most exposed retailers to the latest round of tariffs, which could force the company to raise prices.

Best Buy’s five-year plan assumes that the impact of tariffs “normalizes over time,” according to a company presentation.

The next big test for Barry is the holiday selling season, and expectations are high as the company has delivered two consecutive strong holiday performances. Rivals like Walmart Inc. and Target Corp. have beefed up their consumer-electronics offerings, while Amazon.com Inc. now promises next-day delivery of millions of items for members of its Prime program. Best Buy, meanwhile, said 40% of its online sales are picked up in its stores, and 80% of those orders are ready for pickup in 30 minutes or less.

Investors also heard from Chief Operating Officer Mike Mohan, finance chief Matt Bilunas and the heads of the company’s health-care business and supply chain.

(Updates with details on presentation in 10th paragraph and tariff assumptions in company forecast in 12th paragraph)

To contact the reporter on this story: Matthew Boyle in New York at mboyle20@bloomberg.net

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Lisa Wolfson, Jonathan Roeder

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