Best Buy CEO to face Wall Street skeptics

Best Buy's new CEO, Hubert Joly, could be in for a severe grilling on Tuesday as he meets with analysts and investors in New York City.

The company hired Joly as a transformative leader with the strategy and plan to boost the struggling retailer's sagging sales. Joly had no prior experience in retail when he joined the consumer electronics chain in September. Since then, the company's share price has fallen 14 percent.

Best Buy these days is a beleaguered and much disparaged company. Sales at stores open at least 14 months have fallen for nine consecutive quarters, and the company's stock recently hit a 10-year low. Despite annual sales of about $50 billion, there's much disappointment, if not scorn, for Best Buy on Wall Street. Joly can expect a skeptical reception in New York.

"These guys have a lot to prove to 'the Street,'" said Brian Yarbrough, a stock analyst with Edward Jones. He said Joly needs to address the company's challenges.

"He needs to lay out a plan that says this is how we're going to compete with all these online players, including Amazon, obviously being the largest," Jones said. "And this is what we're going to do with our store base and how we're going to structure it. They've got too many big stores."

Best Buy has well over 1,000 stores, and many of them were built at a time when the retailer dominated the market for DVDs, CDs, computers and televisions. Other outlets including iTunes and Walmart have moved into Best Buy's turf and siphoned off sales, leaving the company with stores that are too big and hurting the bottom line.

In addition, Best Buy is seen as a laggard in the online retail world. Analysts are unimpressed by Best Buy's online sales, which amount to about 4 percent of the company's total revenue.

Retail consultant Carol Spieckerman said Joly needs to be as detailed as possible in laying out his plan to solve Best Buy's problems, and turn in a performance that is candid and blunt.

"No news is not good news," Spieckerman said. "I think anything that seems like he's holding something close to the vest or not revealing something would be deadly."

If Joly delivers a credible plan, Spieckerman said, he can persuade investors to be patient and not dump Best Buy's stock, even if revenues and profits decline in the short term.

"It's a critical juncture and a good time for him to step up and have something to say, even if he's not able to lay out a longer-term plan," Spieckerman said. "I think it will be beneficial to lay out a short-term [plan] that creates some confidence around this leadership. And I think the more radical the change, the more tolerance there will be for losses and setbacks along the way."

IN NEED OF TURNAROUND

As Best Buy enters the critical holiday shopping season, earnings and sales are heading the wrong way.

The retailer says earnings for the quarter that ended Nov. 3 will be significantly down from the same quarter last year. It also expects to report yet another decline in sales at stores open at least 14 months.

"It seems like things are getting worse by the month at the company right now," said R.J. Hottovy, an analyst with Morningstar. He says it's time for decisive moves.

"Frankly, there been a lot of discussion about a turnaround," he said. "But there just hasn't been a viable plan to turn around this business and make Best Buy sustainable for the longer term."

Former CEO Brian Dunn promised big changes, but he resigned in April amid an investigation of an inappropriate relationship with a young female employee. Interim CEO Mike Mikan vowed to deliver a grand plan this past summer. But Best Buy passed over Mikan in favor of Joly, who had led the Carlson hospitality company and developed a reputation as a turnaround artist.

Wedbush analyst Michael Pachter, perhaps Best Buy's most vocal critic, does not expect Joly to unveil a plan that will wow Wall Street.

"I just think people are going to be truly unimpressed with anything they have to say," Pachter said.

Whether Joly impresses or not, in many ways he is not fully in control of the company's destiny, at least in the short term. Best Buy's biggest shareholder and founder, Richard Schulze, continues to work on developing an offer to buy the company outright. Schulze has said "immediate and substantial changes are needed for the company."

Given Best Buy's challenges, analysts are skeptical that Schulze will be able to win the financial backing he needs. Whatever Joly says in his presentation, there is likely little he can do to clear the fog of uncertainty about Best Buy's future.

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