Best Buy: Is the Turnaround Strategy Working?

Michael Teague  |

After a year during which Best Buy Co., Inc. (BBY) struggled to get a plan together that would eventually see the company regain at least some of the market share it had lost, particularly to online competition such as Amazon (AMZN) and eBay (EBAY), the consumer electronics chain store posted fourth-quarter results that seem to validate their turnaround efforts.

In Q4, the company narrowed losses dramatically to $409 million, or $1.21 per share, versus a loss of $1.82 billion, or $5.17 per share, for the same period a year ago. Adjusted earnings came in at $1.64 per share, beating analyst estimates of $1.54 per share. Revenue was more or less flat at $16.71 billion, but also beat Wall Street estimates of $16.29 billion.

Some additional positive signs included higher gross margins and an 11.2 percent increase in online sales.

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For 2012, Best Buy was also able to narrow losses considerably to $249 million, or 73 cents per share, versus the $1.32 billion loss, or $3.57 per share, in 2011. Revenue was a bit lower at $49.62 billion from the $50.04 billion in 2011.

The report was released as the months-long speculation about Best Buy’s founder and largest shareholder Richard Schulze buying back the company and taking it private were finally put to rest on Thursday. Schulze was ultimately unable to make an offer, one of the reasons being an apparent lack of investors interested in putting up the money required to purchase the retailer for $24-$26 per-share.

Finally, the earnings figures look particularly solid in light of the fact that they seem to correspond more or less to the letter of the turnaround strategy articulated by new CEO Hubert Joly. After a year during which it became clear that fierce online competition and customer show-rooming simply had to be dealt with were the company to survive, Joly’s priorities have been focused on online sales, developing a viable price-matching policy, making difficult decisions about layoffs (to the surprise of many, mostly at the corporate level) and closing underperforming stores, and simplifying distribution and supply chain.

Shares popped as high as over 6 percent to $17.45 in early trading, but have settled back into the mid-$16 range.

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