Blog Posts by Jeff Macke

One day after Best Buy (BBY) founder Richard Schulze pulled his plans to make an offer for the chain the company posted results well ahead of Wall St estimates, sending the stock soaring in pre-market trading.

For the all important holiday quarter BBY posted adjusted EPS of $1.64 on $16.7b in revenue compared to expectations of $1.54 and $16.4b. CEO Hubert Joly was pleased with the results but cautioned that 2014 would be a "year of transition". To that end Best Buy will ramp up SG&A with special attention paid to revamping the on-line division.

While refusing to offer financial guidance Joly laid out 6 areas of focus for the company. Investors can use these as a way to gauge Best Buy's progress. These priorities are 1) grow on-line sales 2) improve multi-channel selling 3) increasing sales and profits per square foot 4) driving down costs in the supply chain 5) optimizing the real estate portfolio [most likely by closing stores] 6) reducing SG&A expenses [cutting HQ staff].

Author, analyst and friend of Breakout Hitha Prabhakar says Schulze not being able to fund a buyout is the best outcome for all concerned. In the attached video Prabharkar explains that there's no magic bullet for the troubled electronics retailer but Joly's Renew Blue strategy deserves a chance.

"At this point I would say 'in Joly we trust,'" Prabhakar says of Schulze. Joly is reducing headcount in the home office rather than stores, increasing training and has apparently succeeded in stopping the bleeding, if not restoring the chain to full health. It may not be enough to return Best Buy to its former glory, but the Joly plan is about the best choice of the known options.

In the mid-teens Best Buy is too expensive to earn a large enough premium for Schulze to get control at a decent price. The smart play is for Schulze to sit back and watch. He's got billions invested in the company already. If Joly's plan works, Schulze will get even richer. If Renew Blue is a flop, Schulze can swoop in at a lower price. A buyout at these prices is the highest risk play with a limited upside potential.

[Last night after this piece was published, Groupon (GRPN) announced that Andrew Mason had been ousted as CEO. Given the controversies, operational failings and stock performance since Groupon went public, Mason's departure didn't come as an enormous shock.

What was surprising was the way Mason broke the news to company employees. In an email sent to workers and posted publicly ("since it will leak anyway") Mason was equal parts funny, open and candid. He was actually inspiring to a degree that made it easy to wonder what might have been had he come into the job with more experience and better advisers.

Mason's Memo was his finest moment as a CEO.

His note in full:

People of Groupon,

After four and a half intense and wonderful years as CEO of Groupon, I've decided that I'd like to spend more time with my family. Just kidding - I was fired today. If you're wondering why... you haven't been paying attention. From controversial metrics in our S1 to our material weakness to two quarters of missing our own expectations and a stock price that's hovering around one quarter of our listing price, the events of the last year and a half speak for themselves. As CEO, I am accountable.

You are doing amazing things at Groupon, and you deserve the outside world to give you a second chance. I'm getting in the way of that. A fresh CEO earns you that chance. The board is aligned behind the strategy we've shared over the last few months, and I've never seen you working together more effectively as a global company - it's time to give Groupon a relief valve from the public noise.

For those who are concerned about me, please don't be - I love Groupon, and I'm terribly proud of what we've created. I'm OK with having failed at this part of the journey. If Groupon was Battletoads, it would be like I made it all the way to the Terra Tubes without dying on my first ever play through. I am so lucky to have had the opportunity to take the company this far with all of you. I'll now take some time to decompress (FYI I'm looking for a good fat camp to lose my Groupon 40, if anyone has a suggestion), and then maybe I'll figure out how to channel this experience into something productive.

If there's one piece of wisdom that this simple pilgrim would like to impart upon you: have the courage to start with the customer. My biggest regrets are the moments that I let a lack of data override my intuition on what's best for our customers. This leadership change gives you some breathing room to break bad habits and deliver sustainable customer happiness - don't waste the opportunity!

I will miss you terribly.

Love,

Andrew" ]

In its short, ignominious history as a public company, Groupon crushed the hopes of more true believers than Santa Claus and Jim Jones combined. From its closing level on the day of its IPO in November 2011, GRPN shares have lost more than 80%, driven by accounting scandals, an ill-conceived international expansion and generally poor execution of a not-very-smart business model.

Groupon's haplessness shouldn't surprise Breakout viewers. What is fresh information is the company's hideous earnings miss last night when it reported a 12-cent loss versus expectations of a 2-cent gain. For good measure, Groupon also guided revenues for the current quarter to somewhere between $560 and $610 million. Analysts were expecting $650 million.

With Groupon trading 19% lower today, Breakout welcomed OptionMonster.com's Jon Najarian to ask him if there's a trade lurking in the bloodbath. Najarian says the company's best hope is to change its business model in a way that would be more friendly to both consumers and business partners. It's not as crazy a thought as it first seems.

The basic idea is extending the length of the deals being offered. Instead of requiring customers to be constantly checking their inbox for bargains, Groupon would act more like a shopping mall.

One year ago J.C. Penney (JCP) CEO Ron Johnson laid out a plan to change the way the world thinks not just about Penney's but the entire department store model. New pricing, fully refreshed stores designed to be a destination "mall within a mall" and partnerships with fashion forward brands never before associated with the dowdy J.C. Penney.

"All it takes is courage" Johnson told a packed audience, "We can change a brand overnight."

Suffice it to say Johnson and J.C. Penney fell short of those lofty ambitions. Last night it concluded one of the worst years in corporate history with the announcement of their 4th Quarter results. How bad was it? Consider:

• JCP lost just short of a billion dollars for the year with $551 million of that coming in the all important holiday period.
• Total revenue fell 25%
• The company sacked more than 30% of the employees at its Dallas HQ; more than 1,600 people
• Internet sales dropped a stunning 34%. For perspective rival Macy's (M) grow its online business 48%

"We made some big mistakes and I take personal responsibility for this" Johnson said last night with atypical humility. "Experience is making mistakes and learning from them and I've learned a lot".

What Johnson's customers have learned over the last 12 months is that the 111-year old department store chain can no longer be trusted. J.C. Penney first abandoned then restored promotional pricing. It hyped refurnished stores before even 1/3 of the chain had been redone. Legacy customers were jettisoned before new shoppers were secured.

Target (TGT) reported earnings for the fourth quarter this morning, beating expectations but leaving as many questions as answers. The discounter earned $1.65 on $22.7 billion in revenues compared to estimates of $1.48 and $22.6b. For the current quarter Target expects to earn $1.10 to $1.20 compared to previous guidance of $1.05.

At first blush the results far exceeded the numbers posted by Wal-Mart (WMT) last week but they still left much to be desired. For one thing the guidance was confusing as it includes an assortment of one-time charges related to Target's expansion into Canada.

Related: Wal-Mart's Atrocious Quarter Reveals a Faltering Economic Recovery

There's also the pesky issue of margins. In the U.S. Target saw its gross fall 60 basis points in Q4 and 40 basis points for 2012. An acceleration of a declining margin trend is hard to overlook.

Retail guru and author Hitha Prabhakar has a couple more questions for the company. "Two things here, Canada and their expansion and this payroll tax," she says in the attached video. January same store sales were positive but that just means Target was able to move marked down goods. That shows good execution but being able to sell stuff at cost is hardly an investment thesis.

Google (GOOG) is beating Apple (AAPL) senseless in the stock market if not yet the marketplace. Unencumbered by leadership questions or shareholder lawsuits, Google shares have gained nearly 12% so far in 2013 compared to a grim 17% decline for shares of Apple. The trend has traders wondering if "long Google, short Apple" is the new version of "long Apple, short Google" as a tech hedge core position.

Despite recently hitting an all-time Brian Sozzi of NBG Productions thinks shares of Google still have room to run higher. In the attached clip Sozzi waxes euphoric of Google "showing a little leg" with clunky $1,500 glasses and the prospect of a self-driving car. Even if these products are a long way from becoming anything more than niche products, what we've seen so far beats Apple's Kremlin-style approach to releases.

Related: Activism Alone Won't Save Apple Shareholders

In a sense Google is benefiting from the skepticism that plagued Apple at the beginning of the century. Google

David Einhorn may have scored a tiny victory over Apple (AAPL) in court last week, but that's not likely to stop the ongoing crash in AAPL shares. That's because Apple's main problem isn't one of corporate structure or a huge pile of unused cash. Apple's stock is lower because the company has lost its way as a disruptive creative force — and there's nothing Einhorn or anyone else can do to help.

Simon Baker of Baker Ave Asset Management agrees. "The only thing that can really help out is innovation," Baker says of the crumbling stock. "That's what Apple is lacking right now."

Apple apologists can whine about Einhorn or "the market" for not understanding the Apple story, but the harsh reality is Apple's not growing earnings anymore. All the things that were unique about the company aren't as adorable when investors are groping for a reason to buy Apple on what is now a 40% dip.

With Steve Jobs gone, the onus for proving that Apple is still an innovation factory falls to the bulls, not

Home Depot (HD) is powering higher today after reporting better than expected fourth quarter earnings results. In addition to the strong bottom line Home Depot raised guidance, increased its dividend by 34%, and announced a $17 billion share buyback plan. The news came on the heels of decent results from competitor Lowe's (LOW), which disappointed on margins yesterday and continues to struggle with a turnaround.

Lowe's woes aside, the home improvement business clearly isn't suffering. Simon Baker of Baker Ave Asset Management says the industry has been improving for the last 6 or 7 quarters. "What it's telling you is that the recovery is still very much intact," he states in the attached video.

Between Lowe's and Home Depot the plucky Englishman prefers to shop at the former, but invest in the latter. "Lowe's a little bit tired," he says, quickly adding some dating advice as a brief aside. "In terms of the financials of it Home Depot looks like a better place to go."

Baker is still

Stocks fell sharply yesterday on news of a worst-case-scenario election outcome in Italy. The S&P 500 fell 1.8% to close at 1,487, well below key support at 1,500. Even worse for the bulls the drop came after early gains, creating a 2.5% intraday reversal. Investors who have long claimed to be waiting to "buy a dip" were nowhere to be founder.

Matt McCall, founder and president of Penn Financial Group says the price action is positive even if it is maddening. "Every time we see any kind of pullback buyers jump in," notes McCall in the attached video. Despite breaking short-term support McCall thinks a drop is constructive. Markets that go up in a straight line can't be trusted. The short sharp declines are frustrating but part of the process of getting equities into strong hands.

Speaking of strong hands, plenty of folks have been clinging to cash in the hopes of getting a chance to "buy the dip." Those would-be investors have been stuck waiting for that correction for at least the last 10% move in the broader tape. McCall says investors on the sidelines are getting too cute with their entry points, missing chances to get long stocks.

"Anytime you actually get a 5% pullback the investor that's waiting for it when it happens (investors) are too scared because they read headlines that tells them it's the end of the world."