The electronics retailer Monday announced that it is planning tosell off its money-losing Musicland division. The company did not sayhow much it expects to receive for the division or when it expects tosell it, saying only that it plans to give an update on its efforts inJune.
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 growthbeyond 2005, when it planned to complete its store build-out in theU.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 moredramatically lately. In the company's third quarter, for instance,Musicland's same-store sales, which compare results at outlets openmore than one year, fell by 11.5%.
In December, Best Buy
warned that Musicland's operating loss for the year would be between $80million to $85 million, far higher than the $10 million it hadoriginally forecast.
In an attempt to cut the losses, Best Buy in January closed morethan 100 Musicland stores, about 8% of the company's total, and laidoff about 700 employees. Over the course of fiscal 2003, Musiclandclosed about 160 stores, which include those operating under the SamGoody's, On Cue and Suncoast brands.
Best Buy intends to sell Musicland within the next year, said companyspokeswoman Lisa Hawks. She declined to say who the company hastalked to about selling the division. The company has hired GoldmanSachs to handle the potential sale.
As part of the changes with Musicland, Best Buy said it haspromoted Connie Fuhrman to president of the division. Fuhrmanpreviously served as executive vice president of Musicland. FormerMusicland 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 willdepress 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 thatwill also affect its earnings. The company has adopted a new accountingstandard regarding promotional fees received from vendors. The changein accounting will augment fourth-quarter earnings by 8 cents a share,but will reduce full-year earnings by a penny a share.