NOTE: On August 7, 2012 the press release was revised as follows: In the third paragraph, the sentence reading “The stable rating outlook reflects Moody's expectation that Best Buy will continue to profitably defend its market share, and as a result credit metrics will not change materially despite the still-difficult consumer environment.” has been removed. Revised release follows.
New York, August 06, 2012 -- Moody's Investors Service today changed the outlook for Best Buy
Co., Inc. ("Best Buy") to developing from
stable and affirmed the company's Baa2 senior unsecured rating.
RATINGS RATIONALE
The change in outlook to developing from stable considers the uncertainty
regarding the potential impact on the company's capital structure
surrounding the announced potential bid by former Chairman Richard Schulze
to take Best Buy Co., Inc. private at a price of between
$24-26 per share. "Mr. Schulze's
letter to the Board of Directors, included as an August 6,
2012 amendment to an existing Form SC 13D, makes it clear that while
he is in discussions with various parties surrounding additional equity
contributions and debt financing, he has no firm commitments for
either at this juncture, so the situation remains fluid.
We will be closely monitoring all aspects of this situation, including,
but not limited to, potential impact on operating performance of
any distractions that may result," stated Moody's Senior
Analyst Charlie O'Shea. "Best Buy is currently managing
to a leverage target of less than 2.75 times as measured by debt/EBITDA,
which we feel is acceptable for the Baa2 rating. In the event the
company undertakes any actions to increase its leverage, for any
reason, downward rating pressure would result."
Best Buy's Baa2 long-term rating continues to reflect the company's
position as the largest dedicated consumer electronics retailer,
its highly diversified and innovative product line, its solid credit
metrics -- debt/EBITDA for the 12-month period ended
March 2012 was around 2.7 times -- and its balanced
financial policy. Ratings support is also provided by the company's
demonstrated ability and willingness to reduce share repurchase activity
in order to maintain its Baa2 credit profile. Other key rating
factors include the presence of internet retailers, primarily Amazon,
and discounters and warehouse clubs as primary and formidable competitors,
especially around the key Holiday and Super Bowl selling season,
as well as the highly-promotional nature of the consumer electronics
segment in general. Ratings
could be upgraded if Best Buy sustained debt/EBITDA below 2 times.
Additionally, the company would need to further strengthen its already
strong competitive position across multiple segments and remain disciplined
from a pricing perspective so that margins do not erode. Ratings
could be lowered if competition increases to the extent that Best Buy's
competitive position and operating performance erodes, if comparable
store sales trend negative for a sustained period, if gross margin
were sustained below 22%, if debt to EBITDA was sustained
above 2.75 times for an extended period, or if the company's
philosophy regarding share repurchases and dividends was to turn more
aggressive.
The principal methodology used in rating Best Buy, Inc. was
the Global Retail Industry Methodology published in June 2011.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
Best Buy, Inc. is the world's largest dedicated retailer
of consumer electronics, with annual revenues of around $51
billion.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has
issued the rating.
Charles O'Shea
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's changes Best Buy's outlook to developing; affirms Baa2 senior unsecured rating