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Best Buy’s Survival Story Taking Shape

Best Buy’s Survival Story Taking Shape

Best Buy (BBY) reported earnings with a little something for everyone. For the bears there were shrinking revenues, declining margins and diminishing sales on a comparable store basis and just about every other numerical measure of results. The company pronounced the reported 32-cents non-GAAP and 29-cents GAAP profits to be "better-than-expected" but said more about expectations than Best Buy's quarter.

Noting that the stock is up 125% in 2013, my Breakout co-host Matt Nesto is unimpressed. "Now the question is, do you believe these guys?" Nesto grumbles in the attached clip. "Why would you get on board the ship at these levels?"

The answer depends on where you look. Last March BBY CEO Hubert Joly laid out the six focus areas of his Renew Blue turnaround plan. As discussed on Breakout at the time, those measures would be the appropriate way to gauge Best Buy's progress, particularly since the company itself suspended financial guidance. Applying these metrics to the results released this morning shows BBY making some degree of progress.

Best Buy grew online sales 16%, struck a deal to establish Samsung Experience Shops, "negotiated overall rent reductions at a number of stores," ripped another $175 million of annualized SG&A expenses out of the supply chain and sold off its European operations. While the turnaround remains very much a work in progress, the company has a plan and is sticking to it — even if they aren't absolutely certain what the end result will be.

Encouragingly for investors, Best Buy has established its own goals and is now clearly charting its progress on a quarterly basis. In other words, Mr. Joly is telling employees, Wall St and anyone willing to listen what he wants to do and is going out and doing it. That doesn't mean Best Buy is going to be a long-term winner, but it does mean the company has a plan.

Shares are up 50% in 52 weeks, but in that time Best Buy has pulled out of a death spiral and is even showing tiny signs of life. No matter what the official expectations were for Q1, the mere fact that BBY is off life support is a huge upside surprise compared to where the company seemed to be headed this time last year.