Where to start with Best Buy (NYSE:BBY)?
A total mess, that’s where.
Boardroom scandal and embarrassment. Corporate mismanagement. Intense, brutal competition from Wal-Mart and Target (NYSE:TGT) on the ground, and Amazon (NASDAQ:AMZN) online. Founder Richard Schulze made a pitch in August to take his old company private. After some back and forth, Schulze got his wish to open the books and make an offer. The discussed price? Between $24-$26 per share, a hefty 45% premium from its recent price.
Strategy: This part’s a bit in reverse. Before any real changes can be discussed, BBY must decide whether to eventually sell out to Schulze. Once that happens, it’s a race to remake Best Buy’s stores. But to what? Well, at least something more than a showroom.
Reality: So far, all that’s happened is BBY hired a buyout guru named Hubert Joly, and the company is directing its store employees to be more friendly, knowledgeable and helpful. Now that is a strategy. Nothing else seems to be in play.
Result: The stock is languishing — down 23% YTD — investors no longer have any dividend to fall back on, the outstanding purchase price appears hard to either justify or finance, and again, a change in the stores seems unlikely until a final decision is made.
What’s Next? Truthfully, I think investors are just hoping to see a realization of the original offer price, even if it’s on the low ($24) side, just to end the limbo before BBY circles the Circuit City drain.
I’m trying to limit myself to an hour on this piece, so let’s just leave it at this: Meg Whitman is the latest in a line of failed CEOs trying to turn this stinker around.
Strategy: Cut, cut and cut to prosperity, apparently. That starts with the work force. The most recent cut of 2,000 employees will go toward meeting a target of a 29,000-person reduction in payroll by 2014. HP merged two dying units — printers and PCs — earlier this year to, well, cut costs of course.
Reality: Well, expectedly, you’ve got more people entering unemployment lines, and of course the resulting “operating efficiencies” promised by management. In the meantime, the most recent quarter’s earnings sure weren’t pretty. No sign yet of how that cutting transforms into profitability, as the company wrote off $8 billion last quarter on its EDS investment, so time will tell.
Results: The stock is down 30% year-to-date, 26% in the past six months and 16% in the past three months. Frankly, not a lot of people have Whitman’s faith.
What’s Next? The PC business isn’t getting better, so I don’t know. What’s left to cut?
Outlook: Comatose. If it weren’t for HPQ’s good cash situation, it might be worse.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long AAPL.