Retailer Best Buy (BBY) was at the heart of the home electronics revolution that swept America in the 1990s. Computers became staples of businesses, video games became big business, and TVs boasted bigger and better pictures.

But the technological revolution that delivered tremendous sales to Best Buy kept churning along after Y2K and ultimately left the brick-and-mortar retailer behind. A failure to adapt to online competitors that sold more at lower prices has been weighing on the big-box store's sales for some time.

Thursday, Best Buy made its biggest admission yet of its failure to remain relevant, and it's looking to get back in the game. The company announced the closure of 50 larger stores and plans to open 100 smaller ones, amid mixed earnings results that might signal BBY is turning around at long last -- if it doesn't tick off customers in the process.

Admittedly, the earnings numbers are pretty ugly. Best Buy lost $1.7 billion in its latest quarter, thanks to some big one-time charges. Adjusted earnings actually beat expectations, but that's after the retail giant had missed Wall Street's estimates in its past two reports. Best Buy had also posted four straight quarters of year-over-year earnings declines before the most recent report.

But if you back out the charges this time around, there are reasons for optimism. Holiday sales were impressive and were a huge improvement over those of previous years. Best Buy tallied earnings per share of $2.47 in the fourth quarter, up 25% from 2011, and full-year EPS were up 6% over the previous year.

So is the retailer really turning around? It's hard to say. At the very least, Best Buy has admitted the need to change, with moves such as:

• $250 million in planned cost reductions in the next year and $800 million in cuts by fiscal 2015
• Closing 50 big-box stores in the next year
• Opening 100 U.S. Best Buy Mobile small-format stores in the next year

In short, Best Buy is getting smaller, both in its big-box operations and in its physical store sizes.

That's a huge gamble. Most consumers shop online because of the price benefits, but surely many shoppers also turn to the Web because they hate waiting in long lines or dealing with unhelpful employees in big-box stores.

Best Buy certainly may be showing signs of a turnaround on some metrics, but Wall Street appears to be clearly in the wait-and-see camp.

But if Best Buy cuts costs at the expense of its customers, no amount of right-sizing is going to save this company.

Jeff Reeves is the editor of InvestorPlace.com, and the author of The Frugal Investor's Guide to Finding Great Stocks. Write him at editor@investorplace​​.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff did not hold a position in any of the aforementioned securities.

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