Best Buy Shopping Musicland Around

Best Buy (BBY) has decided it's time to stop the music.

The electronics retailer Monday announced that it is planning to sell off its money-losing Musicland division. The company did not say how much it expects to receive for the division or when it expects to sell it, saying only that it plans to give an update on its efforts in June.

Best Buy acquired Musicland in January 2001 for about $700 million, including the assumption of more than $270 million of long-term debt. The acquisition was meant to help Best Buy continue its revenue growth beyond 2005, when it planned to complete its store build-out in the U.S.

But things haven't worked out as planned. Musicland sales fell 1.5% in its first year under Best Buy and have fallen even more dramatically lately. In the company's third quarter, for instance, Musicland's same-store sales, which compare results at outlets open more than one year, fell by 11.5%.

In December, Best Buy warned that Musicland's operating loss for the year would be between $80 million to $85 million, far higher than the $10 million it had originally forecast.

In an attempt to cut the losses, Best Buy in January closed more than 100 Musicland stores, about 8% of the company's total, and laid off about 700 employees. Over the course of fiscal 2003, Musicland closed about 160 stores, which include those operating under the Sam Goody's, On Cue and Suncoast brands.

Best Buy intends to sell Musicland within the next year, said company spokeswoman Lisa Hawks. She declined to say who the company has talked to about selling the division. The company has hired Goldman Sachs to handle the potential sale.

As part of the changes with Musicland, Best Buy said it has promoted Connie Fuhrman to president of the division. Fuhrman previously served as executive vice president of Musicland. Former Musicland President Kevin Freeland left the company in January.

Best Buy, which will report its fourth-quarter earnings on Tuesday, will account for Musicland as a discontinued operation. The change will depress its earnings by 3 cents a share in the just completed quarter, but will boost full-year earnings by 15 cents a share.

Separately, the company announced another accounting change that will also affect its earnings. The company has adopted a new accounting standard regarding promotional fees received from vendors. The change in accounting will augment fourth-quarter earnings by 8 cents a share, but will reduce full-year earnings by a penny a share.

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