Layoffs? At Best Buy (NYSE:BBY)? Before you batten down the hatches and prepare for the end of the world as we know it, realize that Best Buy's announcement that it would eliminate 300 corporate jobs is not a sign of retreat.
If anything, it's more of a redirection. Its administrative overhead was getting out of hand, clocking in at 16% of total sales this past quarter; that's more than the 15% slice devoted to the same line item a year earlier. One doesn't expect corporate expenses to grow faster than the top line, which makes this move unfortunate but understandable. It certainly doesn't mean that Best Buy will be shrinking anytime soon. It's just getting rid of some of the white-collar excess at the company, in a move that will also trim away at the company's use of outside consultants.
The consumer electronics superstore chain will continue to grow. It will keep expanding, and that will call for 8,000 new in-store hires to go with its staff of 128,000 employees. The 940-unit chain has had success with its 12,000-employee Geek Squad, and some of its new hires will be home-theater installers as the company expands its Magnolia store-in-a-store home theater concept. That's been a key growth area for Best Buy, as lower prices on entry-level plasma and LCD screens and high-end rollouts of even bigger systems helped produce some whopping triple-digit comps growth in home theater sales over the holidays.
It's nice to see TVs, cell phones, and digital music players save the day. The consumer-electronics segment has grown to account for 45% of all sales at Best Buy as media sales have fallen. (Folks just aren't buying CDs, DVDs, and video games the way they used to.)
It's not just Best Buy, of course. Other retailers like Circuit City (NYSE:CC) and Tweeter (NASDAQ:TWTR) are trading well above their 52-week lows on the strength of television sales.
Shares of Best Buy have risen 44.6% higher since David Gardner recommended the company to Motley Fool Stock Advisor newsletter subscribers just before the holiday shopping season of 2003 got underway. That's nearly twice as sweet as the S&P 500's 23.2% advance in that time.
The good times should continue. If anything, it's great to see Best Buy take a hands-on approach to keeping its corporate overhead in check. With moves like this, Best Buy may ultimately become an even better buy.
Longtime Fool contributor Rick Munarriz enjoys shopping at Best Buy. He doesn't own shares in any of the companies mentioned in this story. T he Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
