Has Best Buy Come Back From the Dead?

Less than a year ago, Best Buy (NYSE: BBY  ) wasn't exactly everyone's favorite stock pick. Many had dismissed the tech retailer as the next brick-and-mortar casualty of Amazon's online commerce blitz, and the company was trading for around $11.29 at the end of December 2012, its lowest point in five years.

Then came 2013, and with it, a gradual ascent back into the market's favor. Now, Best Buy's stock price has rebounded a full 160%, but is the dramatic increase well-deserved, or just a fluke?

Belle Joly
The person perhaps most responsible for Best Buy's resurgence is Hubert Joly, its new CEO. Joly first came on board in the latter half of 2012, a few months before the company hit its five-year low point, and he has fiercely lobbied to get Best Buy's online sales on par with Amazon's. Last year, 6% of Best Buy's total revenue was from online sales, and the company ensnared 7% of the U.S. online electronics market share (Amazon, meanwhile, took 21%, taking the top spot while Best Buy held 11th).

Joly believes Best Buy can eventually grow its online earnings to 2.5 times their size, which would make it much more viable competition for Amazon. One way he intends to expedite this plan is by shipping online orders from select stores instead of online distribution centers, a tactic that could save major funds.

Additionally, Joly has aggressively tried to trim the fat by redesigning floor space, cutting costs on many products, and reducing the amount of less popular offerings like CDs. To top it off, the company is selling off all of its share in Best Buy Europe to its joint venture partner, Carphone Warehouse, for $775 million. This is more than just spring cleaning.

The latest report
Joly's intentions are clearly noble and the market is responding positively, but are his efforts actually working?

Judging from the latest quarterly earnings call, some of Best Buy's statistics are performing a bit more sluggishly than Wall Street would like to admit. Revenue, for instance, came in at around $9.3 billion, down 9% from the same time last year. However, the company's operating margin has improved significantly, rising from 0.1% last quarter to 1% this time around, thanks to a significant decrease in SG&A spending. Even if these figures are extremely small, it's still progress.

Looking farther down the income statement, however, we start to see some unsightly negative numbers. Net income for the quarter was negative $81 million, which is actually a huge improvement compared to the negative $1.7 billion on the books during the quarter of February 2012. Joly's efforts appear to have made a dent, but he's got a long way to go.

Is it really a best buy?
The market may be a little early to the party when it comes to celebrating Best Buy. The company's new CEO is working hard to turn his ship around, and has already made a positive impact. But Rome wasn't built in a day, and Best Buy isn't going to reinvent its online commerce platform overnight. The company's not a goner, but would-be long-term investors might want to wait a little longer to see whether Best Buy's financials continue to improve.

Best Buy isn't the only retailer that has had to adapt to e-commerce. The industry is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


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  • Report this Comment On July 12, 2013, at 4:58 PM, ezboxbreaks wrote:

    HELL NO! if you call the horrible treatment of it's employees and customers a WIN-WIN? then you've come to the right place for a short. HOWEVER this company FIRES LEGITIMATE HARD WORKING EMPLOYEES just prior to a jobs cut to "impress" it's shareholder base and prevent them from jumping ship. THEN! it announces a myriad of "layoffs" to make it look "good on paper" I AM ONE OF THOSE EMPLOYEES! and i know of several others in my local market who were treated (summarily executed) just the same. without rhyme or reason the company just comes up with things out of the blue and decides to "make examples" out of employees or direct leadership in an effort to "SCARE THE DAYLIGHTS" out of it's line level staff so that they will work themselves to the bone to keep their jobs.

    the last time i checked? the NAZI PARTY operated this way by scaring the jews and executing them with the use of labor camps.

    BBY is a JOKE and should NEVER EVER be treated like a viable company! go shop at amazon.com if you know any better. this company alternatively couldn't run a services related business to save it's life! no profit margin exists within the years and years of attempts to make money by ripping consumers off with shotty service from employees that are forced to become repairmen, HT "technicians" and PC servicemen all wrapped into one! they expect them to be a jack of all trades and a master of NONE! these service people are miserable and have absolutely NO VOICE whatsoever.. their feeble "attempts" to placate to the masses is horrendous and they should all mobilize to form a service union. EVERY LAST ONE OF THEM are underpaid and entirely under appreciated for the work that they are demanded to do.. forcing employees to work OT same day without say so or permission from the employee due to lat minute "disasters" that happen on a DAILY BASIS to every tech route! their stores are complacent when it comes to leadership and change to identify problems and come up with real world solutions to affect the consumer and employee satisfaction. this company is FORCEFUL, UNDERHANDED with it's deplorable HR TACTICS, LIES and shady practices. STAY FAR FAR AWAY FROM BEST BUY AND THE GEEK SQUAD if you know what's good for you. YOU HAVE BEEN OFFICIALLY WARNED (take it from someone who led them with dedicated, consistent and firm leadership for years since their inception) Don't be had!

    and dump this stock!

  • Report this Comment On July 12, 2013, at 5:32 PM, grahamsway wrote:

    Back from the dead is probably an appropriate view. It doesn't mean that the patient is very healthy nor will go on with a long a prosperous life.

    Near its lows the risk/reward was heavily favored to the upside, now maybe not.

    Here,

    http://beta.fool.com/grahamsway/2013/06/05/why-a-new-ceo-is-...

    I discuss Best Buy and how the new CEO helped bump the stock.

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