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A Tale of Three Turnaround Stocks

Among BBY, HPQ and JCP, which has a real future?

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Best Buy

  • YTD return: 212% (all numbers refer to share price appreciation)
  • One-year return: 103%

Best Buy LogoThings could not have looked more bleak for Best Buy (BBY) than in October 2012, when its stock price hovered around $15 per share, two newly hired executives announced they would leave the company, and shareholders cast a wary eye on founder Richard Schulze’s “proposed” $24-per-share offer to buy the company.

What’s happened in just under one year is remarkable: CEO Hubert Joly pulled tightly on his new reins; revamped and restaffed his C-suite to include notable e-tail executives like Williams-Sonoma’s (WSM) Sharon McCollum; shut down older, nonperforming superstores; redesigned its smaller Best Buy Mobile locations; and promised prospective shoppers it would match discount prices from competitors.

Voila! Customers went back, BBY’s cost structure fell, and profits followed. In the second quarter (ended Aug. 4) revenues fell just a tad compared to its 2012 second quarter, but still beat estimates. Even better, earnings rose to 77 cents per share compared to 4 cents per share on a year-over-year basis as cost cuts worked their magic.

Joly and company are on a great track, and kudos all around. But how much room is available for additional cost-cutting, and how long can Best Buy continue to match discount pricing? Adding store-within-a-store concepts for Microsoft (MSFT) and Samsung (SSNLF) models will hopefully ring up additional sales, but of course the jury is out on those ventures.

My take on BBY is it will manage to survive long-term on the strength of Joly’s management vision.

Article printed from InvestorPlace Media,

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