Shares of BestBuy (BBY) have fallen some 20% over the last three weeks as the retailer of consumer electronics saw some bad news flow in recent weeks.
A Month Of Bad News
Shares traded around the $28 mark near the end of March but fell to $25 after the company expected a decline in comparable store sales of 2-4% for its fiscal year of 2013. The company also announced the closure of 50 stores which underperform. This will result in pre-tax restructuring costs of $300-$350 million.
On top of that came the unexpected news that CEO Brian Dunn resigned last week after the company was looking into the personal conduct of the former executive. The news came as a complete surprise after he was working on a long term plan for the company.
BestBuy will most likely appoint an outsider to run the electronic retailer, which would be the first time in its history. The company lost a lot of customers to Wal Mart (WMT) and Amazon.com (AMZN) in recent year. BestBuy announced that the search for a new executive could take between 6 and 9 months.
Analysts point out that BestBuy has not been tough enough in price discussions with its vendors in the recent past in the wake of increased competition. An executive with a strong e-Commerce background is required, who could create an overhaul at BestBuy. Investors are disappointed that the company "only" closed 50 of its 1,100 stores.
BestBuy ended its first quarter with roughly $1.2 billion in cash and $1.7 billion in debt, for a net debt position of $500 million. After the recent decline in the share price the market values the electronic retailer at some $7.7 billion which represents a mere 0.15 times revenues for the calendar year of 2011, a year in which the company lost over $1 billion. Its much smaller competitor RadioShack (RSH) trades at an even lower multiple of 0.13 times revenue.
Despite all the problems investors still receive a quarterly dividend of $0.16 for an annual dividend yield of 2.9%
Shares in the multinational electronics retailer have halved from levels of $45 by the end of 2010, to levels of $22 at the moment. Shares are approaching their lows around $20 last seen amidst the height of the financial crisis. Despite a strong recovery in broad based equity markets, BestBuy is approaching the lows as increased competitive pressures outweigh benefits from the economic recovery. Both broad-based brick and mortar as well as online electronic retailers make BestBuy's life hard.
The company is drifting without a specific long term strategy making it less competitive every day. Unless a strong outside CEO will formulate a credible and transformational strategy or private equity partners will have an interest for the company, there are no triggers for short to medium term outperformance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.