Best Buy (BBY) shot up nearly 10% in Tuesday trading thanks to beats on both the top and bottom lines for its second quarter, putting BBY shares near tripling territory for the year-to-date.
If you’re like most investors, you’ve gotta be wondering what the heck is going on.
A year ago, Wedbush analyst Michael Pachter lambasted newly hired CEO Hubert Joly, saying the following about the former hotel and hospitality executive: “We find Mr. Joly’s resume unimpressive…He lacks sufficient experience to engineer a turnaround at Best Buy.”
Pachter’s insightful words makes me think of the movie Good Will Hunting when Will Hunting boasts about getting Skylar’s phone number, saying, “Well, I got her number. How do you like them apples?”
Joly could boast right now, but he won’t because the man with supposed little experience knows the game is far from over:
When Joly was hired last August, he admitted it would take several months to learn about Best Buy’s business. By December, he had put together a game plan including the hiring of former Williams-Sonoma (WSM) executive Sharon McCollam as its CFO. Joly’s plan included six priorities, with e-commerce — an area it has woefully ignored — topping the list.
Anyone who follows Best Buy knows that the biggest threat to its existence are online-only retailers such as Amazon (AMZN). The term “showroom” had become Best Buy’s calling card — and a bad one at that.
To change this reality, Best Buy needed to become price competitive. So in March, BBY introduced “price matching,” which allows customers to go into their local store and get the same price they would pay at Amazon and 18 other online retailers. There are some caveats to this arrangement, but it has generally been well-received.
The other sore spot has been Best Buy’s e-commerce capabilities. It matters little that it offers price-matching if it can’t deliver the product. In the past, it was losing sales on between 2% and 4% of its online traffic each week because of out-of-stock inventory at its distribution centers. To rectify this, it has initiated a 50-store pilot program that turns the locations into additional fulfillment centers for the company. By Thanksgiving, it hopes to have a total of 200 stores handling online fulfillment.
This should definitely help increase Best Buy’s online sales, which accounts for 6.1% of its overall domestic revenue.
There definitely was some good news in Best Buy’s Q2 results. But once you subtract the $264 million legal settlement it will receive from several defendants regarding its lawsuit over price-fixing on LCD panels, its bottom line isn’t nearly as impressive. Still, it’s positive, and the trend is what counts in this situation.