Best Buy (NYSE:BBY) implemented its Renew Blue initiative in Fall 2012. It's time for a progress report.

Renew Blue update
In Fall 2012, Best Buy listed its two main challenges as declining comps (sales at stores open for at least 14 months) and shrinking margins. The Renew Blue transformation was expected to fix these two problems by improving product offerings and the customer experience, and via cost-cutting measures. If you're a "just give me the bottom line" type of investor, then you won't be pleased.

In the first quarter, Best Buy's comps declined 1.3% year over year. Best Buy cited weakness in the consumer electronics industry. Gross profit came in at 22.4% of net sales versus 23.1% in the year-ago quarter.

Despite these negatives, Best Buy stated in its 10-Q filing that it has achieved market share gains in the United States thanks to improved price competitiveness and customer experience (advice, service, convenience). That's potentially good news, but if you're focused on the big picture, then it all comes down to free cash flow and profits driving shareholder value. Keep that in mind as we see how this story plays out. 

Road map for long-term success
One key initiative is merchandising improvements in Appliances, Home Theater, and Mobile. And this is all about store-within-a-store.

In Appliances, Best Buy just added six new Pacific Kitchen and Home store units, and it plans on adding 50 more this year. In Home Theater, it just added two new Magnolia Design Center store units, and it plans on adding 20 more this year. Best Buy will also launch 500 Samsung Entertainment units and 350 Sony Entertainment units by the end of the third quarter. For Mobile, Best Buy will sell new installment billing plans with Sprint and Verizon, and AT&T won't be far behind (late in the second quarter).

Best Buy is certainly going big with merchandising, which will either lead to significant long-term rewards or complete failure. The former is more likely thanks to differentiation, but it won't happen overnight. 

In marketing, Best Buy is ahead of industry trends by shifting the majority of its attention from traditional television ads to digital ads. However, this is about future potential. If you want actual results, then you can look at Best Buy's online performance.

Domestic online comps jumped 29.2% in the first quarter year over year. Having ship-from-store available at all locations to go along with a 20% increase in product reviews both helped in this regard. Note that the availability of ship-from-store at every retail location has led to faster deliveries and a reduction in supply chain costs.

Speaking of costs, Best Buy eliminated $95 million in annualized costs in the first quarter, bringing the Renew Blue cost-savings total to $860 million versus a long-term target of $1 billion.

As you can see, Best Buy is either in line with or ahead of industry trends. This is a big positive for the long haul, which makes Best Buy a somewhat interesting investment opportunity. However, the word "somewhat" was used for a reason.

Expectations and options
Unfortunately, Best Buy expects the consumer electronics industry to suffer in the second and third quarters. This includes softness in mobile phones, as customers wait for new launches later in the year. Due to these trends, Best Buy expects negative comps in the low-single digits in the second and third quarters. While the Renew Blue initiative should lead to further cost reductions, negative comps expectations is a concern.  

If you're anxious to invest (not a Foolish approach), then you might want to cross Best Buy off of your watchlist. If you're a patient investor, then look at Best Buy as a high-risk/high-reward long-term investment. 

If you would prefer to play it safe and you're looking to invest in a company that sells consumer electronics (and just about everything else you can imagine) that also consistently delivers top-line growth, then you might want to consider Amazon (NASDAQ:AMZN) instead. Over the past five years, Amazon has delivered top-line growth of 281% whereas Best Buy has suffered a 11.1% revenue decline. However, free cash flow plays a bigger role in regard to future potential, and these two companies have performed similarly in that regard over the past decade:

AMZN Free Cash Flow (TTM) Chart

AMZN Free Cash Flow (TTM) data by YCharts

While neither shows consistent free cash flow growth, both are consistently well north of the border, which gives them ammunition for innovation and expansion. Best Buy also currently pays a 2.7% dividend yield. 

Amazon might be seen as high risk since it's trading at 102 times forward earnings, and this could lead to disruptions in the stock price if there are any surprises, but Foolish investing is more about looking at the strength of the underlying company and understanding that short-term stock price fluctuations don't matter. 

Best Buy is trading at just 11 times forward earnings, but it's still a higher-risk investment than Amazon because of its inferior positioning. That said, don't toss Best Buy to the curb. 

The Foolish conclusion
Best Buy isn't overly appealing at the moment, but it's not a dud, either. It's a company that you should keep on your watchlist and watch vigilantly. If Best Buy pulls off its turnaround, then it could offer solid returns for investors. However, Best Buy must overcome fierce competition and the continued expectation of a soft electronics consumer. This won't be easy. Now doesn't look like the best time to buy shares.