Best Buy Sticks to its Growth Plan

Zacks

Despite a difficult operating environment, Best Buy Company Inc. (BBY), the leading specialty retailer of consumer electronic products, did not change its core strategies. The company remained focused on deploying its capital toward expanding the Best Buy Mobile brand and store-within-a-store (:SWAS) concept into 14 Five Star stores in China.

The move is in line with the company’s transformation strategy, wherein it plans to accelerate the growth of its business in China. Best Buy expects to open 50 new Five Star stores in China in fiscal 2013, while it plans to generate $4 billion in sales and increase the store count to 400 - 500 by fiscal 2016. 

The company is troubled with sales declines in key categories including televisions, notebooks, digital imaging and gaming devices, which in turn, are taking a toll on the company’s same store sales results.

Moreover, Best Buy’s Founder and Chairman of the Board and the largest stakeholder of the company, Richard Schulze, stepped down after serving for almost four decades.  Speculation is rife that Schulze along with some private equity players might take over the company, as he is exploring options for his 20.1% ownership stake in the company.

On the positive side, measures are being taken to steer the company through these difficult times. Going forward, the company has announced a string of strategic measures to boost its long-term profitability. With its multi-channel strategy, the company intends to enhance its store formats while increasing its global footprint. Best Buy, through its cost reduction program, plans to generate $800 million in cost savings by fiscal 2015, including $250 million in fiscal 2013. 

Currently, we have a long-term ‘Neutral’ recommendation on the stock. Moreover, Best Buy, which faces competition from Wal-Mart Stores Inc. (WMT), holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.

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