1 More Reason to Sell Best Buy

In case you missed the news over the weekend -- and Best Buy (NYSE: BBY  ) is certainly hoping that you did, given the nature of pushing out a regulatory filing on Friday after the market close -- its new CEO is already dumping shares.

Hubert Joly sold nearly $1.2 million worth of Best Buy stock on Wednesday. The filing claims that the shares were "automatically withheld upon vesting of shares to satisfy tax withholding obligation." A Best Buy statement on Friday night also confirmed that the transaction was done solely to cover the tax hit associated with stock grants.

"These sales are commonplace and done at predetermined dates," the statement reads.

It still looks bad. It's just a reminder of how stupid it was for Best Buy to take on a new CEO -- a foreign CEO for which there were even penalty contingencies coming out of the retailer's pockets if Joly couldn't secure the appropriate work visas -- at a time when founder Richard Schulze was trying to orchestrate a buyout.

Joly's excessive pay package and Best Buy's horrendous quarterly report filed the following day point to the board's ineptitude in positioning the company for a buyout that would maximize shareholder value.

Even if investors aren't incensed at the transaction that saw Joly unload a sliver of his freshly acquired effective stake in Best Buy at a mere average price of $18.02 last week -- when Schulze was offering an exit strategy for the entire company in the mid-$20s earlier this summer -- they should still be worried.

Best Buy's model may be irreparable. Even if it emphasizes big-ticket appliances along the lines of hhgregg (NYSE: HGG  ) or furniture along the lines of and Conn's (Nasdaq: CONN  ) , we're still talking about a chain that will have too many stores given the infrequent nature of repeat visits for non-media items. The push to open a chain of smaller mobile stores in strip malls sounds great on paper, but it's been a disaster for RadioShack (NYSE: RSH  ) . Even pushing toward trade-ins and pre-owned resale merchandise doesn't seem like much of a strategy now that pioneer GameStop (NYSE: GME  ) is suffering double-digit declines there.

Automatic? Commonplace? Predetermined? It doesn't matter. Best Buy clearly is overpaying its new CEO -- perhaps its final CEO -- if a seven-figure sale is necessary just to satisfy a tax bite.

Best Buy is not a good buy
I entered a bearish CAPScall on Best Buy in Motley Fool CAPS last year. The call is beating the market so far -- because Best Buy is not. It's a gutsy call now, but I'll stick with it on paper. I wouldn't short Best Buy with real money.

If you want to play nice with the trends that will pay off in the future, forget Best Buy and begin reading up on the stocks that smart investors are buying. It's a free report, but it will only be available for a limited time, so check it out now.

The Motley Fool owns shares of Best Buy, GameStop, and RadioShack. Motley Fool newsletter services have recommended buying shares of hhgregg. Motley Fool newsletter services have recommended creating a modified stock repair position in GameStop. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (2) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 18, 2012, at 8:24 AM, afoolsname wrote:

    So, Since it is commonplace to sell shares to pay taxes ... this becomes a reason to sell??? Why even put this in the article.

    Not that I have any judgement on BBY just saying

  • Report this Comment On September 18, 2012, at 8:58 AM, Youguess9999 wrote:

    This company should have " sold" along time ago

    It's clear they have no idea how to run a company.

    I'm sure they are on stage one scream at employees because they are not getting results .

    And when this does not work they tank . It's clear that the direction of how the company is being run

    Is not the right direction.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2019047, ~/Articles/ArticleHandler.aspx, 8/31/2014 4:23:20 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement