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Best Buy Shares Jump on Europe Exit

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Best Buy (NYSE: BBY  ) shares jumped again today, climbing as much as 11% after the struggling electronics retailer announced that it will ditch its European operations.

So what: The big-box chain said it would sell its 50% stake in Carphone Warehouse Group back to Carphone for about $775 million. Carphone shares finished up over 15% on the news. Management said it made the decision to focus on its core business in the U.S., which has been sputtering lately. Best Buy will taking a steep loss on the investment, as it originally purchased it in June 2008 for $2.15 billion, but the deal turned into a boondoggle as the recession killed hopes for a Best Buy-style chain in Europe. The decision to sell seems to be an admission of failure.

Now what: After falling to nearly $11 a share last year, Best Buy shares have rebounded strongly, more than doubling since the beginning of 2013 and often gaining on non-events. First, founder Richard Schulze made a since-scuttled attempt to take the company private, then shares jumped after Best Buy made a deal to host Samsung kiosks in its stores, and now we have the divestment from Europe. Despite the gains in share price, sales continue to fall, and the company has taken some large write-offs as it attempts to restructure. The recent moves to by to begin collecting sales tax may help Best Buy stay afloat, but the operational weakness continues to persist. That's a good enough reason for me to stay away.

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9/30/2016 4:01 PM
BBY $38.18 Up +0.77 +2.06%
Best Buy CAPS Rating: *