Best Buy Investors Can Only Blame Themselves

Best Buy (NYSE: BBY  ) shares hit yet a three-year high today, oblivious to another insider unloading a big chunk of shares.

CEO Hubert Joly sold nearly $17-million worth of company stock on Friday, netting roughly $10 million, after backing out the cost of exercising the options that made up the lion's share of the sale. Joly's contract required him to hold his awarded shares for at least two years, but the compensation committee cleared the way for the sale by waiving the final year. 

He had a reason for raising the money.

"Mr. Joly has recently gone through a divorce and needs to sell a portion of his holdings in order to cover the costs of that unfortunate event," a company spokesman said in a statement explaining why Joly was selling roughly 20% of his stake in the company that he took over a year ago.

You have to feel sorry for Brian Dunn, the former CEO who was let go last year after breaking a company rule by having an inappropriate relationship with a 29-year old employee. There was no waiver or rule leniency there. Then again, he did walk away with a $6.6-million severance package, so maybe he's the one who got the last laugh here.

Joly's sale isn't the only notable bigwig cashing out. Founder Richard Schulze entered into an automated selling plan to unload a chunk of what was his 20% stake in the retailer between October and March of next year. This was the same Schulze that was actually trying to team up with private-equity investors to take Best Buy private last year.

To be fair, Best Buy's stock has more than doubled since the time when Schulze wanted to buy the company back last summer. Cashing out makes sense.

You won't hear Schulze or Joly admit that they're selling because the stock's valuation has gotten out of whack after more than tripling so far in 2013. Schulze wants to diversify his assets; Joly has a divorce to settle. However, if the stock does peak here -- and it might -- investors will only be able to blame themselves. 

Joly has done a great job of shaving overhead at Best Buy, but there's no way that this company is as valuable as it was the last time it traded this high during the 2010 holiday shopping season. 

Best Buy still doesn't have a response to Amazon.com (NASDAQ: AMZN  ) and the showrooming trend that's been nibbling away at sales growth. Even in the chain's most recent quarter, revenue and comps dipped slightly. Amazon's North American sales soared 30% in its latest quarter.

Joly has helped improve margins at Best Buy -- and even the reputation is improving -- but until the shoppers start showing up again, it's hard to feel that this is a stock that deserves its multi-year highs. Its two most prolific insiders have moved to sell a lot of stock over the past month. That's a hard thing for bulls to ignore.

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  • Report this Comment On September 11, 2013, at 2:50 PM, Fido01 wrote:

    Yep, I even heard that we didn't land on the moon either! Hey guess what? You should leave the conspiracy theories to the discovery channel and get into evaluating business with real world perspective without speculating.

  • Report this Comment On September 11, 2013, at 2:58 PM, bammerone wrote:

    OK, wait a minute Rick. The two main examples of insider selling you cite are perfectly reasonable, and not any indication these executives have lost confidence in this company. 1) Joly sought and received approval to sell some of his stock options (awarded as part of a recruitment bonus when he walked away from his previous compnay and a bbunch of options) this is for a divorce to generate some cashola. What would you do if you needed to come up with 50% of your assets in cash - now, for a divorce. 2) Schulze is no longer looking to buy the company after having reached an agreement with the Board. He too is divesting PART of his stake, as per an agreemetn with the Board to divest. Nothing nefarious in either case. Further, we always tout tying compensation to performance. Well performance had been pretty damn good from my perspective as a stockholder. These two are still going to own a significant chunk of stock - in fact Joly is required to maintain a minimum level of shares in BBY.

  • Report this Comment On September 11, 2013, at 3:34 PM, mistacy wrote:

    Take your profit

    & run.

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