Posted at 4:00 PM on January 6, 2012
by Paul Tosto
Filed under: Economy
Here's some perspective on Best Buy from MPR News business editor Bill Catlin:
Best Buy announced the December results at what seems to be an inflection point in the company's history. Last year was brutal for the company. Its share price dropped 32 percent over the course of the year. But the past month has been especially painful.
When the company announced disappointing quarterly earnings in mid-December, the share price fell a bone-crushing 15 percent. The following week news outlets lit up with stories that Best Buy was cancelling orders placed online at the start of the holiday season.
Some of the headline writers didn't hold back:
Gizmodo: Best Buy is Ruining Christmas [Bad Buy]WTHR: Some Best Buy customers left in the lurch
Kansas City Business Journal: Best Buy's Black Friday may bring a blue Christmas
The company later said the problem affected less than one percent of orders placed online during the Thanksgiving weekend and the following week. But the bad PR undoubtedly reached more than 1 percent of its customer base.
Then last week, a blog post vivisecting Best Buy on the Forbes.com website went viral. The title was: Why Best Buy is Going out of Business...Gradually. Here are a few of the harpoons:
"It's not competition from Amazon that's killing Best Buy here; Best Buy is doing most of the damage to itself.""It's not just Amazon's prices that are better.... Its customer service is superior in every way."
"[Best Buy] is caught in a death spiral. Not because of new competitors who, fairly or unfairly, are eating its lunch. These wounds are self-inflicted."
As of today, that critique by Forbes blogger Larry Downes had more than 2.1 million page views. His next most popular post -- just 14,683.
Then earlier this week, Wall Street number crunchers got into the act. A Bloomberg story reported that Best Buy would be an attractive candidate for a leveraged buyout.
"'Now would be the time, if I were private equity, to be dusting this off,' Joe Feldman, a New York-based analyst at Telsey [Advisory Group], said in a telephone interview. 'They generate a ton of free cash. From a valuation standpoint, it does look like an attractive candidate for a takeout.'"
A big disappointment in the December sales results appeared to have the potential to throw the company's future into question. But investors are pleased with the outcome. Best Buy shares closed up 3.3 percent, after rising as high as 5 percent.
Investors pointed to indications the company picked up market share during the holidays, and expressed relief that the company did not reduce its profit outlook for the year.
As David Strasser of Janney Capital Markets put it, "after being hit hard through 2011, this provides some sense of stability ...."