Analysis: Best Buy could climb higher if CEO Joly lives up to hype
By Dhanya Skariachan
NEW YORK (Reuters) - Even though Best Buy Co's (BBY.N: Quote) stock has tripled this year, riding on the success of CEO Hubert Joly's turnaround strategy, many on Wall Street think the retailer's resurgence isn't over.
Investors and analysts say Joly's initiative - anchored by sharp cost cuts - could boost the stock further, especially because shares still trade at a discount compared with peers. The U.S. electronics chain faces fierce competition from the likes of Wal-Mart Stores Inc (WMT.N: Quote) and Amazon.com Inc (AMZN.O: Quote) but is showing signs it can compete against them.
Analysts say Joly can boost earnings further if he takes more costs out, strikes favorable deals with more vendors and change the perception among many shoppers that Best Buy's prices are higher than those of Wal-Mart and Amazon.
How times have changed. A year ago, Best Buy's share price was near a nine-year low, sales were in free fall and management was in disarray after the departure of Chief Executive Officer Brian Dunn under the cloud of an ethics probe into his inappropriate relationship with a female employee.
Fast-forward to this summer, when the company posted its first profit in a year, confirming that Joly's turnaround plan for the world's largest consumer electronics chain is working. Net earnings rose to $266 million in the second quarter ended August 4, up from $12 million in the same quarter a year earlier.
Joly, who took Best Buy's helm in September 2012 after heading hospitality firm Carlson for four years, has already cut $390 million in costs by removing layers of management, eliminating hundreds of jobs and closing some unprofitable stores.
Joly and Chief Financial Officer Sharon McCollam have also boosted cash by $1.2 billion, including $650 million from the sale of Best Buy's stake in a European joint venture with Carphone Warehouse CPW.L. Continued...