Fitch lowers Best Buy debt outlook to 'negative'
Apr 17, 2012 (Menafn - Pioneer Press - McClatchy-Tribune Information Services via COMTEX) --Fitch Ratings has lowered Best Buy's debt outlook to negative, warning that the retailer faces a growing array of competitive threats, amplified by the departure of its CEO.
"Fitch believes that Best Buy faces headwinds around same-store sales, market share and competition that are more pronounced than other 'BBB'-rated retailers with similar leverage," Fitch said Monday, April 16.
"The revision in the outlook to 'negative' reflects the potential for an accelerating shift in consumer electronics sales to the online channel and the possibility that Best Buy's restructuring efforts, including accelerating store closings and a re-engineering of its operations to take excessive costs out of the system, will prove to be insufficient to offset the pressures facing its business," the ratings agency said.
Fitch also affirmed Best Buy's bond rating of "BBB-," which is one step above junk-bond territory. Richfield-based Best Buy has 2.2 billion in outstanding debt.
In a statement, Best Buy said in response, "It is important to note that Fitch reaffirmed Best Buy's investment-grade credit rating. The outlook change essentially means that Fitch believes it has become more difficult to predict where Best Buy will be competitively in one to two years.
"Best Buy's leadership is well aware of the challenges in the evolving consumer marketplace and is actively addressing them," the Best Buy statement continued.
The ratings agency also took note of last week's turmoil,
when CEO Brian Dunn suddenly resigned amid an investigation by the board of directors into a personal conduct matter. Best Buy has begun a search for a new CEO, a process it said it expects to last six to nine months.
"The departure of Best Buy's CEO adds an additional element of uncertainty surrounding the company's management team and future operating strategy," Fitch said.
Not all of Fitch's assessment was gloomy. The ratings agency also noted the company's financial strengths, such as "Best Buy's strong free cash flow (FCF) generation, ample liquidity and reasonable leverage profile."
Earlier this month, Standard & Poor's placed Best Buy on a watch list for a possible downgrade, citing many of the same concerns.
On Saturday, Best Buy announced details on the 42 big-box stores it intends to close next month, including the Rochester South location. The company had earlier announced that five Twin Cities-area locations were closing, bringing the number of its Minnesota store closings to six.
The Fitch statement echoes Wall Street's concerns that the old big-box business model continues to struggle.
"Best Buy's financial performance reflects the pressure on its business, as its comp store sales fell 1.7 percent in fiscal 2012 (ending March 3, 2012) and have not been material positive since calendar 2007," Fitch said. "This figure incorporates strong 18 percent growth in domestic online revenues, implying further erosion in the productivity of Best Buy's retail stores."
Shares of Best Buy closed down 19 cents, or nearly 1 percent, to 21.85.
Tom Webb can be reached at 651-228-5428. Follow him at twitter.com/TomWebbMN.
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