Explaining Best Buy's Great Week

I'm no fan of Best Buy (NYSE: BBY  ) . Not only do I find shopping at its locations to be a typically underwhelming experience, but there just doesn't seem to be a lot of hope for its business model going forward. Where nonperishable commodities are involved, the only rational conclusion is that the Internet will prevail.

That being said, I feel obligated to give credit where credit is due. Over the past week, the electronics giant turned in one of the best performances on the S&P 500 (SNPINDEX: ^GSPC  ) , finishing up by nearly 13% compared with a 1.75% gain for the index itself.

The impetus for the move came on Friday, with the company's announcement that it had reached an agreement to sell its 50% stake in Best Buy Europe for $775 million. As my colleague Adam Levine-Weinberg discussed here, the venture was a dual undertaking with the United Kingdom's Carphone Warehouse, which will now assume full control of the European operations.

According to Hubert Joly, president and chief executive officer of Best Buy, "This transaction allows us to (1) simplify our business; (2) substantially improve our return on invested capital, one of the five pillars of our Renew Blue transformation; and (3) strengthen our balance sheet." 

For those of you who have followed Best Buy's fight to stay relevant since the introduction and growth of e-commerce, this news probably comes as welcome relief.

It's no exaggeration to say that the company has had a rough year. At about this time last year, CEO Brian Dunn resigned after accusations of an inappropriate relationship with a subordinate surfaced. One month later, its founder and chairman, Richard Schulze, followed suit once it came to light that he was aware of Dunn's relationship but had done nothing about it. Schulze then staged and subsequently abandoned an attempt to take the company private. And most recently, he was asked to rejoin the board as chairman emeritus, bringing along two of his colleagues from Best Buy's brighter days.

Under Joly, who was hired following Dunn's departure, Friday's announcement is now the second tangible step forward. The first was last month's news that Samsung will install semi-autonomous stores within all Best Buy locations. As I noted at the time, it was a no-brainer for the bricks-and-mortar retailer that's struggled to get customers in its doors.

But will these moves, along with Joly's Renew Blue program, be enough to stave off an otherwise inevitable decline? That remains to be seen -- though I'll be the first to admit that I'm not optimistic.

Is Best Buy headed for the trash heap?
The battle between bricks-and-mortar companies and e-commerce battle rages on, with Best Buy caught in the middle. After what might have been its most tumultuous year in history, there are now even more unanswered questions about the future for the big-box electronics retailer. How will new leadership perform? Will old leadership take the company private? Will a smaller store format work out for both the company and its brave investors? Should you be one such brave investor? To help answer all these questions, The Motley Fool has released a premium research report detailing the opportunities -- and the risks -- in store for Best Buy. Simply click here now to claim your comprehensive report today.


Read/Post Comments (0) | Recommend This Article (4)

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.

Be the first one to comment on this article.

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: 2408680, ~/Articles/ArticleHandler.aspx, 10/24/2014 4:52:55 PM

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