Can Evidence of a Turnaround Be Found in Best Buy’s Q4 Results?

Just as analysts at Stifel Nicolaus and Barclays Capital indicated with the investment upgrades they gave Best Buy (NYSE:BBY) on February 19, the fortunes of the electronics retailer seem to be improving. And it’s not only analysts that have faith in the company’s resurrection. Investors have bid up the company’s shares to gains of 46 percent on the stock chart this year to date. Its stock has outperformed all others on Standard & Poor’s 500 Index except Netflix (NASDAQ:NFLX) since the beginning of January.

The company failed to receive a buyout offer from its founder, largest shareholder, and former chairman Richard Schulze by Thursday’s deadline, but that leaves Chief Executive Officer Hubert Joly to focus on revamping the company’s strategy and putting its turnaround — that was evidenced in Best Buy’s fiscal fourth quarter results — into high gear.

Best Buy reported fourth-quarter and fiscal year results after the bell on Thursday that beat analysts’ expectations, at least on an adjusted-profit basis. For the quarter ended February 2, profit amounted to $1.64 per share — above the expectations for $1.55 per share held by analysts polled by Bloomberg. The company’s results did show signs that the electronics retailer is still struggling — it posted a net loss for the three-month period — but that loss shrank to $409 million, or $1.21 per share, from $1.82 billion, or $5.17 per share, in the year-ago quarter.

Showrooming — a practice used by customers to test out electronics from Best Buy’s brick-and-mortar locations before purchasing them from Amazon (NASDAQ:AMZN) at a lower price — appears to be abating; sales increased 0.2 percent to 16.7 billion, ending two consecutive quarters of declines. Even online revenue rose 11 percent.

The most positive news contained in the earnings report (other than improvement) was thatthat Joly’s price matching policy helped boost sales without being overly onerous to its margins. Best Buy implemented that strategy during the holiday season to combat showrooming, and has subsequently decided to continue with the policy.

“It was only one quarter, but it is hard to find too much to be negative about after their initiatives started to work,” ITG Investment Research analyst John Tomlinson told Bloomberg, referring to the price-matching policy. “I can imagine the behind-the-scene talks regarding Schulze were only a distraction. It allows them to concentrate on the business and move forward.”

After taking criticism from the company’s board early in his tenure, Joly, who was hired in September to strengthen the company’s operational and financial performance, is making headway. “We remain intently focused on the two problems we have to solve: stabilizing and improving our comparable store sales and increasing profitability across our global businesses,” he said, outlining his game plan in the earnings press release. “We recognize, however, that fiscal 2014 is a year of transition and that further investment will be required to advance our Renew Blue transformation.”

Joly has a hefty set of goals for the upcoming fiscal year: to accelerate online growth, improve customer experience, increase revenue and gross profit per square foot, and lower costs. And now that Schulze will not be taking the company private, the company can “continue to focus on its transformation for the benefit of all of its stakeholders,” read a Friday press release from the company.

Schulze proposed acquiring Best Buy for $24 to $26 a share in August, an offer that was rejected by the company’s board. But he could not line up the debt and equity financing to make the deal a reality, and he missed the February 28 cutoff for a second offer. Since Schulze’s first offer, Joly has stabilized sales by closing big-box stores, expanding into smaller outlets, and improving e-commerce operations, making the electronic retailer’s future brighter than it was when its founder first attempted to buy out Best Buy.

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