Best Buy's turnaround plan shows promise
Better-than-expected results defied the naysayers. And with founder Schulze no longer a buyout player, that strategy is the retailer's best hope.
The Richfield, Minn.-based electronics retailer reported a net loss of $409 million, or $1.21 per share, compared with a year-ago loss of $1.81 billion, or $5.17 per share. Revenue rose 0.2% to $16.71 billion. Excluding one-time items, profit was $1.64 per share, beating the $1.54 average forecast of Wall Street. Best Buy's sales were better than the $16.34 billion consensus forecast.
Under Joly, Best Buy has slashed inventory levels and increased employee training as competition from rivals such as Amazon.com (AMZN) continues to intensify. The big-box store also recently announced plans to cut 400 workers from its headquarters. Still, even under the most optimistic scenarios, the chain has a tough road ahead.
Gross profit rate fell 10 basis points as Best Buy began matching prices of rivals to prevent "showrooming." That's the practice of shoppers looking at merchandise at retailers' bricks-and-mortar stores only to make their purchases at online sites that offer a lower price. Of course, Amazon -- a prime beneficiary of showrooming -- has more flexibility to cut prices further than Best Buy because it doesn't have the costs of physical stores.
The chain's improving fortunes, ironically, may be bad news for Schulze, who was unable to get financing to take Best Buy private. According to Reuters, Best Buy also turned down an offer by Schulze and two private equity partners to make a $1 billion minority investment. It remains unclear what steps Schulze will take next.
Best Buy has no choice now but to proceed with Joly's turnaround strategy because it didn't receive a formal acquisition offer from Schulze by a deadline the company had set.
--Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
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[BRIEFING.COM] Equity indices strung together a daylong rally on Tuesday, giving the S&P 500 its sixth consecutive advance. Some selling during the final hour of action pressured the indices from their highs, but they still ended with the bulk of their gains. The benchmark index added 0.4% with eight sectors finishing in the green, while the Nasdaq (+1.0%) outperformed throughout the session.
Although the stock market began the day on a flat note, the major averages quickly took the ... More
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