Here’s How Best Buy Plans to Transform its Business
Just because Best Buy’s (NYSE:BBY) stock price hit a 52-week low on Friday, it doesn’t mean the company had a slow week.
With shares depressed, third-quarter earnings expectations lowered, and company founder Richard Schulze’s proposed bid pushed to mid-December, Best Buy has a full range of problems. But the company had just one word on its mind this week: turnaround. Even current chief executive Hubert Joly said at the electronics retailer’s annual Analyst and Investor Day, “I am already sick and tired of negative comps.”
By mid-afternoon on Friday, shares were trading down by more than 8 percent, at $13.99. In general, the company’s stock has been on a downward slide: since August 17 of this year, shares have fallen by 24.4 percent from $20.27 to $15.33. The company’s declining stock price has translated into increasingly negative projections for Best Buy’s upcoming earnings report, scheduled for November 20. Over the past four weeks, analysts have dropped their expectations, and the current consensus is for earnings of 12 cents per share, down from earlier estimates of 36 cents a share. Furthermore, analysts expect revenue to decrease 11.3 percent year-over-year.
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The company’s annual analyst and investor conference, held on November 13, came and went without any unexpected pronouncements. Instead, Best Buy’s chief executive explained how he would make the company’s operational and financial performance a priority. Joly identified the company’s late start into e-commerce as the primary cause of its “unsatisfactory” results. However, he did note that customer satisfaction had increased over the last few months. Therefore, in his opinion, the place to start rebuilding is with the Geek Squad. “We have a highly skilled and engaged workforce that is passionate about customer service,” he said. “This is a very strong platform on which to build.”
Joly is attempting to strengthen the company in other areas as well. Best Buy is undergoing a broad restructuring that includes a new chief financial officer. On Monday, it announced that it hired former Williams-Sonoma (NYSE:WSM) executive Sharon McCollam. While the electronics retailer has struggled to make its big-box store business model competitive with online retailers like Amazon (NASDAQ:AMZN), McCollam has no doubts the company can overcome its challenges, The Wall Street Journal reported. In her opinion, Best Buy must build on the popularity of its Geek Squad and provide a level of product expertise “similar to that of an Apple (NASDAQ:AAPL) store but for a much more vast assortment of products.” McCollam also acknowledged that the retailer must grow its share of the online market. Because of the combined focus, her strategy has become known as “bricks and clicks.”
However, investors are not convinced that Joly has outlined a winning strategy, even though BB&T Capital Markets analyst Anthony Chukumba called McCollam’s appointment a “major coup” in a recent research note. According to Reuters, both analysts and investors thought that Joly’s plan for 5 to 6 percent growth in the upcoming quarters was short on details. But Joly said “it would have been ridiculous” to give more concrete information after such a short time with the company.
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