MissionIR's  Instablog

Turnaround efforts continue for the electronics retail giant, Best Buy. CEO Hubert Joly's attempts to stop the company's slow decline have yielded some results but the questionable future remains. With newly implemented policy changes, market cuts and strategic partnerships, Best Buy won't be going down without a fight.

Attempts to Hold On:

Best Buy recently changed their return policy, cutting the allotted time to return an item from 30 days to 15 days. Michael McCarthy, the managing director of QualityStocks, found this out by surprise when he tried to return a faulty cable modem 17 days after the purchase date. The customer service representative allowed an exception, but this was clearly a red flag; especially considering that employees aren't informing customers of the new policy during the checkout process.

The return policy change has caused uproar among consumers and certainly seems to be a step backwards at a time when the retailer is struggling. Knowing there must be something going on internally as none of the other retailers have made dramatic adjustments to their return policies, we did some digging through SEC filings and found that the company's cash position is down significantly. In just eight months, the company's cash and cash equivalents dropped from $1.2 billion to $309 million. It's clear to us that the return policy was changed to help conserve cash.

In another company-wide change, Best Buy recently turned its Price Matching Guarantee holiday program into a permanent policy in hopes for costumer retention. The positive move is an attempt to address the problem of showrooming, the practice of using storefronts to browse through and test products before going home and purchasing online at a cheaper price. Abram Brown, a Forbes markets reporter, stated that, "the price-match guarantee may have come too late to save the company. But, there also may be signs of hope as sales recently increased for the first time since 2010."

Partnering with Samsung, Best Buy will also soon set up "Samsung Experience" shops staffed with trained Samsung employees. The Samsung shops will be installed inside around 1,400 Best Buy stores. A number of these convenient in-house stores are currently already in existence.

Helpful Numbers:

Last month Best Buy sold its 50% holding stake in Best Buy Europe, a joint venture with Carphone Warehouse Group (CPW), Europe's largest independent mobile phone retailer. The deal will mark the end of Best Buy's presence in Europe. Best Buy Europe in the ongoing fiscal year was expected to be in the range of $5.5 to $5.6 billion. Therefore with a 50% holding stake, the deal will help fund turnaround efforts for the giant, although still at a loss on investment given that Best Buy sold its 50% interest in Carphone Warehouse back to them for about $775 million. The original buy-in almost five years ago was $2.15 billion.

In 2011, Best Buy's stock lost 40% of its value. Fast-forward to 2013 and Best Buy reported a 0.9% Fourth Quarter Domestic Comparable Store Sales Increase for the 13-week fourth quarter. In its March earnings report Best Buy managed to post sales of $16.71 billion to squeeze a weak gain above the $16.67 posted a year ago.

Ending Thoughts:

Critics claim Best Buy stores are nothing but showrooms for online retailers like Amazon.com. With a need for a strong digital presence, Best Buy is currently planning to invest around $750 million on company improvements, including a digital facelift. Best Buy will also cut more than $400 million in overall costs. There may be life left in this sleepy retail giant but the future looks uncertain. Best Buy may still be generating signs of life, but the e-commerce versus brick-and-mortar battle continues onward.

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AdCare, a provider of senior living and healthcare facility management and owner/manager of long-term care facilities and retirement communities, is allegedly lined up to receive a tender offer from the Brogdon Family LLC, who in April said it intends to make an offer to acquire a 55-75 percent stake in AdCare at $8 per share, a more than 86 percent premium to the average stock price. The Brogdon Family, controlled by Christopher F. Brogdon, the former chief acquisition officer of AdCare and a current director, currently owns 12 percent of the company.

Interesting timing, considering AdCare's stock turned down a rocky road in mid-March when the company delayed its Q4 earnings release, citing errors in 2012 financial statements. Roughly a month later, on April 15, 2013, Adcare CFO Martin D. Brew bowed out, resigning from the company while an audit committee reported finding material weaknesses and further delayed the restatement. A day later, the Brogdon Family issued a press release outlining its intent for a tender offer of the company.

Despite the hurdles, the market cap of AdCare has risen by more than 30 percent in the past month. But what's more perplexing is the fact that the Brogdon Family has set the offer price at $8 per share, though AdCare stock has never topped $5.78 - ever. Following the mayhem in March, it's hard to imagine this stock making new all-time highs any time soon.

Let's take another approach and look at another angle. Compared to its peer group (Ensign Group (ENSG), National Healthcare (NHC), and Skilled Healthcare (SKH), Adcare is trading at 25x EBITDA vs. 8.5x for the group. The $8 per share offer equates to buying AdCare for 29x EBITDA. That's more than a marginal difference.

Briefly noting the peculiarity that the Brogdon Family announced their "intention" to submit a tender offer vs. making the actual offer, why is the Brogdon Family only interested in a stake of 55 percent - 75 percent of the shares outstanding? The huge premium, again, is a high note compared to AdCare's peer group and considering the Q4 earnings fiasco - so if it's such a great investment, why not the whole thing vs. dropping the tender offer to a more seemingly reasonable premium and gobbling up 100 percent for full ownership?

According to SEC documents and a little dirt digging, the Brogdon Family has yet to position its financing for the deal, and it hasn't appeared to have retained an investment bank to help facilitate the process despite taking publicly announcing its intentions with a press release on www.cnbc.com.

AdCare today issued a press release announcing that it will not meet the extended deadline to file its Q1 report by May 20 and released preliminary data for the quarter, repeating its message that previously issued financial statements for Q1 are not reliable due to the errors in connection with the audit for FY 2012. New CFO Ronald W. Fleming has his hands full.

AdCare said it anticipates Q1 revenues in the range of $56.0 million to $59.0 million - analysts peg revenues for the quarter at $68.5 million. Net income is expected to range from $1.1 million to $2.2 million, excluding costs associated with the restatement process. The company anticipates these costs in the range of $1.2 million to $1.5 million.

Shares are down 5% at $5.50 mid-day Friday following the release … $8, hmm?

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FluoroPharma, a developer of imaging drugs that underpin important diagnostic capabilities of positron emission tomography (PET), targets a fast-growing market. This market is currently over $7 billion in size and is expected to top $15 billion in 2015.

One of the elements driving this growth is the increasing demand for personalized medicine, something that requires a clear and accurate view of key biological processes occurring deep within the body. Other market drivers include an aging population and the growing demand for cost-effective imaging technologies in the Asia-Pacific market. Cardiology and neurology remain two of the industry's strongest growth opportunities. In the case of FluoroPharma, the current focus is on cardiovascular (CV) disease and Alzheimer's disease, with imaging drug products that allow PET scans to display in exquisite detail processes that can lead to such diseases.

One in three adults have some form of CV disease, and PET molecular imaging offers superior image quality, but there are no widely adopted PET drug agents in cardiology. FluoroPharma has three products directly addressing the CV market:

• BFPET - For measuring cardiovascular blood flow, in combination with stress testing in patients with presumptive chronic cardiovascular disease, BFPET has the potential to become the new "standard" and replace SPECT (Single-Photon Emission Computed Tomography) in institutions with PET capability.
• CardioPET - For detecting regions of fatty acid uptake, CardioPET is for the diagnosis of acute and chronic CAD in patients that cannot undergo stress testing.
• VasoPET - For detecting inflamed plaques, which are plaques most likely to rupture and cause a heart attack or sudden death.

FluoroPharma is also developing AZPET, an amyloid deposit imaging agent for the early detection of Alzheimer's disease.

For more information, visit www.FluoroPharma.com

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