Exploding Samsungs partly to blame for disappointing Best Buy results

The "softness" in cellphone sales is down in no small part to the massive recall of Samsung Galaxy Note 7s.
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Another day, another disappointment for a Minnesota-based retailer this week, with Best Buy joining Target in reporting sales numbers below expectations.

The Richfield company increased its profits by 26.7 percent to $607 million over the holiday period, thanks in part to cost-cutting, but declining sales and revenue worried investors and caused shares to drop 4 percent on Wednesday.

Same-store sales declined 0.9 percent, partly mitigated by a 17.5 percent increase in online sales, while revenue dropped 1 percent to $13.47 billion.

The thing is, the company said it would have likely increased both its sales and revenue were it not for "softness" in the mobile phone category, which was caused in no small part by the major recall of Samsung Galaxy Note 7s last year after they started catching fire.

Fortune reported in November that Best Buy – which has branded Samsung mini-stores in many of its locations – was expected to take a $200 million hit from the recall.

It wasn't just cellphones. There was also a significant decline in the number of video games being bought, as well as declines in sales of tablets, health tech and wearables.

Improved sales in connected home, computing, headphones and home theater were not enough to offset the decline.

CEO Hubert Joly also highlighted supply problems from some electronics manufacturers during the fourth quarter, which resulted in "unprecedented product availability constraints" that affected revenues.

The company says it expects revenue and income to be relatively flat over the next year.

Hope on the horizon

Best Buy notes that the overall electronics retail industry has been struggling recently, with Fortune saying this could be down to a lack of a "blockbuster" product.

That could change this Friday when the Nintendo Switch goes on sale, and later this year Apple will release its much-anticipated iPhone 8.

And the 1 percent revenue decline comes despite wider electronics retail industry revenues falling 2.8 percent, the company said, suggesting Best Buy is one of the better performers in what is a competitive market.

Looking further ahead, Joly says he is bringing the curtain down on the five-year turnaround plan, called "Renew Blue," he implemented when he joined what was then a struggling company.

He has announced the next phase of his plan for the next three years, called "Best Buy 2020: Building the Blue." Its growth strategy will include increasing efforts to be a multi-channel (ie. in-store, online, mobile) retailer, providing services and solutions that "solve real consumer needs," and expand further into Canada and Mexico.

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