Best Buy share price down, to dispose of Chinese operations

Best Buy announced the sale of its troubled Chinese unit to a local real estate company as the retailer shifts focus to its core operations within the domestic US market.

Best Buy is selling Jiangsu Five Star Appliance to Chinese Zhejiang Jiayuan Real Estate Group as the retailer retreats from the Chinese market due to increased competition. However, Best Buy said it would keep investments flowing into its China-based private label operations, with brand names that include Dynex, Insignia, Modal, Platinum and Rocketfish.

The worlds biggest consumer electronics chain did not announce any financial details around the deal. Best Buy entered the Chinese retail market by obtaining Jiangsu Five Star back in 2006. Currently the brand has 184 operating stores.

The company said that the transaction will not have any material impact on “results of operations, financial position or cash flow of Best Buy.” Five Star was responsible for around 4% of all sales during the business year ended February 1.

“The sale of Five Star does not suggest any similar action in Canada or Mexico. Instead, it allows us to focus even more on our North American business.” said CEO Hubert Joly.

Last year the US retailer exited the European markets by selling back its shares in Carphone Warehouse Group for around $775 million, less than half of what Best Buy initially invested. Back then a lot of analysts advised Best Buy to also leave the Chinese market. This June the Wall Street Journal reported that Best Buy was entertaining the idea of selling its Chinese operations for approximately $300 million.

Other retailers have also admitted that the Chinese market is challenging, Wal-Mart, Nestlé SA, SABMiller and other have have reported decreased sales due to sluggish consumer demand. In 2012 Home Depot disposed of its Chinese operations, after years of losses. Britains Tesco also faced difficulties in the country, however it decided to join hands with China Resources Enterprise and combine supermarkets in an attempt to fight off the severe competition.

Best Buy Co Inc fell 0.16% on Tuesday and an additional 3.12% on Wednesday to close at $36.04 in New York, marking a one-year decrease of 14.19%. The Company is valued at $12.60 billion. According to CNN Money, the 22 analysts offering 12-month price forecasts for Best Buy Co Inc have a median target of $43.00, with a high estimate of $48.00 and a low estimate of $18.00. The median estimate represents a 19.31% increase from the last price of $36.04.