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Best Buy Has a Stronger Pulse

Richard Saintvilus

NEW YORK ( TheStreet) -- Another quarter is in the books, which means Best Buy , which has been on a perpetual deathwatch, has survived another three months.

The bears, meanwhile, are still not ready to stamp the grim reaper's passport and kindly send him on his way. With the behemoth known as Amazon.com not going anywhere and seemingly doing no wrong, the shorts continue to show incredible patience and are biding their time. But Best Buy's not making it easy.

Although the company is still struggling with margins and same-store sales, the level of erosion is improving, which is to say there are clearer signs of progress. The fact that revenue declined again this quarter is a popular point being raised by the skeptics. But in all honesty, the fact that revenue declined by less than 1% has to be viewed as a "win" (of sorts) to anyone who can be objective.

Along similar lines, I'm willing to applaud the fact that "comps," or same-store sales, also declined by less than 1%. This is the metric that tracks the performance of stores that have been opened at least one year. You have every right to be unimpressed by this. But just to keep things in perspective, Wal-Mart , the world's largest retailer, didn't grow comps at all in its recent quarter.

McDonald's , meanwhile, grew comps at just 1% year over year. But McDonald's remains on everyone value menu. I'm not here to compare McDonald's to Best Buy, but both companies operate within the consumer discretionary space. Gven that McDonald's has attributed its underperformance to the slower-than-expected growth of the economy, it's only fair to offer similar considerations to Best Buy.

Besides, given how dominant Amazon has been and the carnage that it has left behind -- including CompUSA, Media Play and Circuit City -- the fact that Best Buy is still around is a marvel. This is to say nothing about the wounded operations for which Amazon is solely responsible -- a group that includes (among others) Barnes & Noble .

But Best Buy has other ideas. Given that inventory was down roughly 7%, it certainly appears as if management's recovery efforts are beginning to pay handsome dividends. It's foolish to pretend otherwise. What's more, the company's partnership with Samsung, which introduced the "store-within-a store" concept, has brought new life back into the stores.

I get that this joint venture was more of an attempt to help Samsung attack Apple's retail advantage, but given the improved traffic the relationship has created, it matters very little what the original plan was. What's more, given the improvement I've seen in Best Buy's margins and with the company's 14% increase in operating income, I will argue that Best Buy has benefited more from the Samsung deal than has Samsung.

The bears will likely disagree on this as well. But from the standpoint of mere "relevance" this partnership has added an extra layer of importance to the "big box" idea. In fact, things have gone so well with Samsung that Best Buy now has a similar agreement in place with Microsoft . It remains to be seen how CEO Steve Ballmer's planned retirement might affect this arrangement, but Windows stores inside Best Buys should present meaningful advantages to both companies.

I've said this on more than one occasion: corporate turnarounds are never easy. As confidently I can now speak about Best Buy, I will admit that I never truly believed this beleaguered retail giant could escape the grasp of Amazon, which has done so much damage to so many other retailers. But signs are finally pointing upward for Best Buy.

The winners out of all of this have been the shareholders. After all, it wasn't that long ago the company's founder and largest shareholder, Richard Schulze, had grown frustrated and offered to take the company private last year for about $24 to $26 per share. Investors resisted. Today, the stock is trading 50% higher than Schulze's offer. Who said patience wasn't virtuous? Given the company's continued improvements, more patience should land this stock at a solid $40 by the end of the year.

At the time of publication, the author was long AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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