• by Sarah Mahoney  @mahoney_sarah, December 16, 2008

Thanks in part to cuts in its advertising budget, Best Buy's third-quarter results came in somewhat ahead of Wall Street expectations. But the company says it is making sweeping changes to deal with what it calls the worst economic environment it has ever faced.

 

"The historic slowdown in the economy and its effect on our business over the past 90 days have been the most challenging consumer environment our company has ever faced," its executives say in its earnings release. "We believe that there has been a dramatic and potentially long-lasting change in consumer behavior as people adjust to the new realities of the marketplace. We clearly recognize that these changes require us to make significant adjustments to our present cost structure."

The Minneapolis-based retailer says it is offering a voluntary separation package to almost all of its corporate headquarters employees. Best Buy says that if not enough employees opt for the buyout, involuntary staff reductions may be required. And it whacked 50% from its capital-spending budget for the year ahead, including a reduction in store openings in the U.S., Canada and China.

For the third quarter, revenues climbed 16% to $11.5 billion from $9.9 billion in the same period a year ago, although comparable-store sales, a measure closely watched by retail observers, fell 5.3%. (In the U.S., comparable-store sales fell 6.3%.)

And earnings plunged to $52 million, from $228 million in the year-ago period--mostly due to the declining value of its 3% stake in The Carphone Warehouse Group PLC. Excluding that charge, earnings declined 34%. That decline came despite reductions in advertising and hiring of seasonal staff.

While the company says it increased its market share 1.7 percentage points in the quarter, many categories suffered as consumers cut back. In the U.S., strong sellers included notebook computers and mobile phones. But as a whole, comparable-store sales of consumer electronics products fell 13.7%, dragged down by double-digit declines of cameras, MP3 players and GPS products. Sales of appliances fell 21%, and sales of entertainment software fell 12.4%. The home office category showed sales increases of 11.1%.

And services--an area the company has made a big push in through its Geek Squad--saw a comparable-store sales increase of 1.3%. That gain came as a result of its new Geek Squad Black Tie Protection offer, which combines Geek Squad services with product warranties.