U.S. business president Mike Vitelli will leave in early February, as will another top U.S. executive, Tim Sheehan. Deleting those senior managers is an attempt to streamline the business, the first major move by new CEO Hubert Joly. Yet, it leaves the retail operation to report directly to Joly—a decision that will again raise question about whether Joly, whose latest gig was leading hospitality and travel chain Carlson, is the best man to steer the beleaguered consumer retailer. “While we applaud the aggressiveness of all of these changes,” says RBC Capital Markets‘ Scot Ciccarelli, “it remains to be seen if these changes can successfully improve the company’s financial performance over time.”
While still a $51 billion (sales) business, Best Buy is struggling to compete effectively with online retailers like eBay and Amazon.com. Most customers use Best Buy’s stores as showrooms—looking at goods, then quickly able to find a better price online by using a smartphone. It’s certainly a problem for other big-box stores like Wal-Mart and Target, but it’s been especially damaging for Best Buy.
The company’s recent years have been punctuated by a lackadaisical Web strategy and inept management. Best Buy swung to a $1.2 billion loss last year from $1.4 billion in profit only four years earlier. Best Buy now expects the third quarter to show dismal sales and an increase in costs. Expenses have actually increased as Best Buy spent more on employee training; part of the turnaround efforts include emphasizing Best Buy’s customer service opportunities. Other elements include free online shipping and a switch to matching Web prices in the stores.
Nonetheless, Best Buy seems listless at a key point of the year. Christmas is coming, a period of the year where Best Buy makes 60% of its yearly profit. “While we were already bearish on Best Buy’s fundamentals heading into the third quarter, we find this pre-announcement indicative of significant operational and macro challenges that exceeded even our weak expectations. This is especially troubling given that we are heading into the critical holiday selling season over the next two months,” says Barclays analyst Alan Rifkin.
Shares of Best Buy fell 5.1% in early morning trading.
As for the buyout from founder Schulze, greater speculation about an imminent implosion will do little to help him to wrangle the backers of a acquisition that could total $10 billion. “Much weaker trends will render securing financing all the more challenging,” says Oppenheimer analyst Brian Nagel. Investors already do not seem to be counting much on Schulze completing the deal. Schulze floated an offer of $24 to $26 a share: Since then, the stock hasn’t closed above $18.
This latest bit of no good, very bad news should prevent investors from gaining any motivation.
Reach Abram Brown at abrown@forbes.com.
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