Best Buy CFO: Coronavirus ‘Very Fluid Situation’ Impacting First Half-Year Results

Best Buy Feb. 27 said it expects interruptions from the global coronavirus outbreak to impact first half-year store results.

Like many retailers, Best Buy generates much of its product inventory from China, which, as the epicenter of the COVID-19 virus, has seen many manufacturing facilities shuttered over worker safety concerns.

“This is a very fluid situation, which makes it difficult to determine exact financial impacts from disruptions in supply chain,” CFO Matt Bilunas said in a statement.

The CFO said the retailer views the situation as a relatively short-term disruption that would not impact Best Buy’s long-term strategy and initiatives.

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“Our guidance ranges for both Q1 and the full-year 2021 [upwards of 2%] reflect our best estimates of the impacts at this time,” Bilunas said.

Separately, the nation’s largest CE retailer disclosed that fourth-quarter (ended Feb. 1) same-store entertainment sales in the United States fell nearly 22% to $1.1 billion compared to a 2.7% increase to $1.3 billion in the previous-year period.

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The entertainment segment includes DVD/Blu-ray Disc movies, video game hardware and software, books, music CDs and computer software.

The nation’s largest consumer electronics retailer said entertainment represented 8% of $13.8 billion domestic revenue, down from 10% of $13.5 billion in Q4 of 2019.

Internationally, same-store entertainment sales dropped nearly 17% to $94 million from a 2.7% drop to $117 million during the previous-year period. Entertainment represented 7% of international revenue compared to 9% in 2019.

Overall, domestic revenue increased 2.6% versus last year. The increase was driven by comparable sales growth of 3.4%, partially offset by the loss of revenue from store closures in the past year.

The largest comparable sales growth drivers were headphones, computing, appliances, mobile phones and tablets. These drivers were partially offset by declines in the gaming category.

Domestic online revenue of $3.52 billion increased 18.7% on a comparable basis due to higher average order values, increased traffic and higher conversion rates. As a percentage of total domestic revenue, online revenue increased to 25.4% versus 21.9% last year.

COVID-19: A Boon to Home Entertainment?

The sudden spread of the Coronavirus disease (COVID-2019), an incurable infectious disease that has killed more than 2,200 people, into Italy, Iran, Austria, Spain, Croatia and South Korea, has sent global markets on a downward spin.

The Dow Feb. 25 reported its worst two-day slide in history in part on the impact of the disease as the Centers for Disease Control and Prevention in Atlanta issued a report saying it was “inevitable” the disease would infiltrate the United States.

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The news had one Wall Street analyst proclaim a potential upside for Roku, which pioneered the subscription streaming media market with Netflix, and now controls the streaming device market as well.

Needham & Co. analyst Laura Martin, in a note, believes Roku could be a stock that benefits should COVID-19 expand into the United States.

Specifically, Martin contends that should the virus spread domestically, consumers would more likely opt to stay home to be entertained rather than going out to the movies, concerts and other public live-event venues.

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In other words, consumers would increasingly opt for home entertainment choices such as subscription VOD, ad-supported VOD, DVD/Blu-ray Disc rentals and/or purchases.

Indeed, Redbox affords users the ability to rent discs online for quick pick-up at the nearest kiosk. The vendor also enables consumers to rent/buy digital titles online.

Walmart-owned Vudu.com and Amazon Instant Movies do the same, while Movies Anywhere platform directs consumers interested in purchasing or renting titles from one of eight digital partners, including Vudu and Amazon.

Movies Anywhere is available free on Roku players and Roku branded televisions, with the digital hub eliminating the need to surf Roku channels and Apple products looking for new-release movies.

Roku-enabled streaming devices top the market, including Apple TV, Google Chromecast and Amazon Fire TV, with 25% of all connected televisions sold in the U.S. being a branded Roku TV.

“That would boost hours viewed and available ad units above projections,” Martin wrote, promoting investment in Roku as a defensive strategy. She lists Roku with a “Buy” rating and a $200-per-share price target, which is 71% above what the stock closed at on Feb. 25 — and up 3% from the previous day.

Iger: Disney Sticking to 90-Day Theatrical Window

Late last year, Disney CEO Bob Iger said the company was considering steps to expedite access to select studio box office titles into retail channels — a move that could shorten the venerable 90-day theatrical window for new-release movies.

No sooner had he said that, Iger reiterated his ongoing support affording exhibitors such as AMC Theatres and Regal exclusive access to movies upon release.

“We have a studio that is doing extremely well and a [release window] formula that is serving us really well in terms of its bottom line,” he said last November.

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Indeed, any mention of shortening Disney’s massive theatrical gravy train for the sake of earlier access on DVD/Blu-ray Disc and digital, seemed shortsighted.

Disney ended 2019 with seven movies each generating more than $1 billion at the global box office. The studio ended the previous fiscal year with nearly $10 billion in ticket sales.

Regardless, the seeds of doubt had been sowed, prompting one analyst on the Feb. 4 Q1 fiscal call to ask Iger if he would “recommit to the theatrical window.”

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“The theatrical window is working for this company, and we have no plans to adjust it for our business,” Iger responded.

With upstart Disney+ streaming service getting every original studio release, domestic exhibitors saw a near 7% decline in tickets sold in 2019 compared to 2018.

Iger suggested the analyst’s question was a reflection how other studios are positioning their films and distribution business.

“We’re not the only movie company,” he said. “I suspect that [questions about the window are] not due to us or either a lack of conviction on our part or any suspicion that we might not be telling the truth. It’s working for us, and we have no plans in the foreseeable future to change it.”

 

Trans World Entertainment Selling f.y.e. Retail Chain

Trans World Entertainment Jan. 23  announced it is selling its flagship f.y.e. (For Your Entertainment) home entertainment retail chain to Sunrise Records and Entertainment Ltd. for $10 million.

The deal, pending shareholder approval, would transfer the retail brand (operating in U.S. malls and Puerto Rico) and web properties (www.fye.com and www.secondspin.com) to the parent of Sunrise Records in Canada and HMV Records in the United Kingdom.

The move comes as TWEC struggles to sustain operations in a rapidly changing retail landscape, in addition to misfires at its eTailz.com e-commerce business.

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The transaction, which was unanimously approved by the board,  follows a process in which the board said it explored all strategic alternatives. The deal is expected to close in the first quarter of 2020.

Until the deal is finalized, Trans World Entertainment will continue to operate its business in the ordinary course, and thereafter Sunrise anticipates keeping substantially all of the current FYE employees.

Following the closing, TWEC plans to focus on the operation of etailz, a Spokane, Wash.-based middleman for third-party sellers on the Internet.

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The f.y.e. chain, which operates more than 200 locations across the country, and has hailed itself as the last standalone packaged-media retailer, reported an operating loss of $21.5 million, with revenue down 14.7% to $40.8 million in the most-recent fiscal period. Comparable store sales declined 5.2% — the drop largely buttressed by gains in collectables revenue. And eTailz.com, the e-commerce middleman acquired in 2016 for $75 million, lost $1.4 million.

 

Record Online Sales Drive 2019 Winter Holiday Retail Results Up 3.4%

With a six-days-shorter winter holiday period this year compared to 2018, retailers pushed earlier discount pricing in stores and online, which resulted in record e-commerce sales and a 3.4% increase in overall consumer spending (excluding autos), according to new data from Mastercard.

Online transactions increased nearly 19% from a year ago and accounted for nearly 15% of overall sales for the period from Nov. 1 through Dec. 24.

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“E-commerce sales hit a record high this year with more people doing their holiday shopping online,” Steve Sadove, senior advisor for Mastercard and former CEO of Saks, said in a statement. “Due to a later-than-usual Thanksgiving holiday, we saw retailers offering omnichannel sales earlier in the season, meeting consumers’ demand for the best deals across all channels and devices.”

Department stores saw overall sales decline 1.8% and online sales growth of 6.9%, emphasizing the importance of omnichannel offerings. Electronics and appliances were up 4.6%, while the home furniture and furnishings category grew 1.3%.

E-commerce continues to drive retail, accounting for 15.4% of Black Friday (Nov. 28) and 24.5% of Cyber Monday (Dec. 1) consumer spending, respectively.

Top online retailers included Walmart, Amazon and Target — all drivers of packaged-media (including DVD/Blu-ray Disc) sales.

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Best Buy Q3 Entertainment Revenue Plummets

Best Buy can’t wait for the winter holiday retail season.

The nation’s largest consumer electronics retailer Nov. 26 said third-quarter (ended Nov. 2) domestic entertainment revenue dropped nearly 21% in same-store sales compared to a gain of 12.4% during the previous-year period. International entertainment sales fell 31% compared to a gain of 10.8% last year.

The entertainment segment includes DVD/Blu-ray Disc movies, video game hardware and software, books, music CDs and computer software.

Entertainment represented 5%, or $448 million of domestic revenue, compared to 6%, or $525 million during the previous-year period.

International revenue represented 5%, or $40 million of same-store sales, compared to 7%, or $58.3 million last year.

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Domestic revenue increased to $8.96 billion, up 2.4%versus last year. The increase was driven by comparable sales growth of 2% and revenue from GreatCall, which was acquired in Q3 last year, partially offset by the loss of revenue from store closures in the past year.

The largest comparable sales growth drivers were appliances, headphones, tablets, services and computing. These drivers were partially offset by declines in the gaming and home theater categories.

“We are excited about our holiday plans,” CEO Corie Barry said in a statement. “Customers ordering online will get free next-day delivery on thousands of items all season long with no membership or minimum purchase required. They can also choose to pick up their products in a store within an hour of placing their order.”

Indeed, domestic online revenue increased 15% to $1.4 billion due to higher average order values. As a percentage of total domestic revenue, online revenue increased 15.6% versus 13.8% last year.

As the holidays loom, Best Buy is offering free next-day delivery on myriad items, excluding bigger and heavier items such as big-screen TVs and refrigerators.

With the service “Store Pickup,” customers can get their order ready within an hour at their local Best Buy. Best Buy reports 40% of online sales are picked up in stores.

‘Frozen 2’ Theatrical Success Bodes Well for Home Entertainment

Walt Disney Animation Studios set a global opening weekend box office record with Frozen II, the sequel to the equally successful original Frozen from 2013.

That release went on to generate nearly $1.3 billion at the box office for Disney — the 15th largest worldwide theatrical tally in history — and help launch a global brand across theme parks, merchandise, cruise ships and ice shows.

Frozen II generated $350 million through Sunday, Nov. 24 and is on course to become Disney’s sixth billion-dollar movie in 2019 following a string of Marvel hits and live-action remakes.

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For home entertainment, the initial box office success of Frozen II could portend greener days for transactional retail, including packaged media and electronic sellthrough.

That’s because the 2014 home entertainment release of Frozen generated combined DVD/Blu-ray Disc sales of $335 million from more than 18 million discs, according to The-Numbers.com.

That’s more discs sold than the combined total for the next three years’ top-selling packaged-media releases: Universal Pictures Home Entertainment’s Jurassic World (2015), Disney’s Star Wars: The Force Awakens (2016) and Moana (2017).

The electronic sellthrough release of Frozen also established a record for fastest-selling digital release of all time.

“If Frozen was happily ever after, then Frozen II is the day after happily ever after,” Jennifer Lee, who wrote and co-directed both films, said in a statement.

Trans World Entertainment Stock Plunges Following Poor Fiscal Results

Despite a 1-for-20 shares reverse stock split, shares of Trans World Entertainment plunged more than 30% Aug. 29 after the parent to home entertainment retailer f.y.e. (For Your Entertainment) reported dismal quarterly earnings.

Indeed, fye comparable store sales decreased 1.2%, compared to an increase of 9.6% during the previous-year period. Increases in lifestyle categories were offset by declines in electronics and packaged media movies, TV shows, music and video games. Comp revenue in the electronics category decreased 0.1%.

Video sales were down 16.1%, due to the underperformance of new releases impacted by soft theatrical releases.

“A headwind that will continue to influence this category in the second half of the year,” CFO Edwin Sapienza said on the fiscal call.

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Lifestyle and electronics categories represented 58% of $76 million revenue for the second quarter as compared to 53% last year. Media category comp sales declined 12.8% for the quarter, and represented 42% of the f.y.e. segment sales compared to 47% last year. Music sales were down 7.8%.

“We continue to see strong sales of K-pop merchandise,” Sapienza said.

The company operated about 200 f.y.e stores in the period compared to 241 stores last year.

Strong ‘Aquaman’ Home Entertainment Sales Up Warner Bros. Q2 Operating Income

Strong retail sales of Warner Bros.’ ocean-based superhero Aquaman contributed to the studio increasing second-quarter (ended June 30) operating income 30% to $440 million from operating income of $338 million during the previous-year period.

Video game (which included the Mortal Kombat 11 release) and home entertainment revenue increased nearly 28% to $552 million from $432 million a year ago.

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Theatrical revenue grew 13.4% to $1.52 billion from $1.34 billion last year. Television product revenue decreased almost 15% to $1.31 billion compared to $1.53 billion last year.

The decrease was primarily due to lower licensing revenue as parent company WarnerMedia holds back content from third parties such as Netflix for its pending subscription streaming video service, HBO Max.

Total WB studio revenue increased 2.5% to $3.39 billion compared with $3.3 billion last year.

Lionsgate Fiscal-2019 Home Entertainment Revenue Falls

Fiscal 2019 (ended March 31) was not a good year for Lionsgate home entertainment.

The distributor saw revenue decrease $181.8 million, or 23.5%, to $592.2 million in the sales of DVD, Blu-ray Disc and digital content. Revenue topped $774 million in fiscal 2018.

For the quarter, packaged media revenue declined nearly 36% to $257.5 million from $400 million last year. Digital sales declined nearly 11% to $334.7 million from $373.7 million.

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Lionsgate attributed the drop primarily due to a decrease of $153.9 million in home entertainment revenue from the studio’s feature films. Box office revenue topped $388.9 million in 2018, down 56% from $885 million in ticket sales in 2017.

In particular, home entertainment revenue generated in fiscal 2019 from retail releases of A Simple Favor, Robin Hood and The Spy Who Dumped Me from the theatrical slate and The Commuter from the fiscal 2018 theatrical slate was significantly less than the year before.

The fiscal 2018/17 theatrical slates released in home entertainment included The Hitman’s Bodyguard, La La Land, John Wick: Chapter 2, and Power Rangers. The four titles generated $75 million in combined DVD/Blu-ray Disc revenue.

In addition, home entertainment revenue from non-feature films decreased $27.9 million, driven by lower revenue from a distribution arrangement acquired as part of the Starz acquisition, partially offset by higher home entertainment revenue from ancillary-driven platform theatrical releases.

On the TV side, home entertainment revenue decreased $33 million , or 30.7% , as compared to fiscal 2018, primarily driven by a significant contribution of revenue from a digital media licensing arrangement in fiscal 2018 for the Starz original series, “Power” Seasons 1-4.

Packaged media revenue dropped 32% to $7.6 million from $11.2 million in 2018.