Best Buy Founder Exits Amid Chaos

Investors in the beleaguered retail chain Best Buy Company Inc. (BBY - Analyst Report) got another shock as Founder, Chairman of the Board and largest stakeholder of the company, Richard Schulze, stepped down after serving for almost four decades.

Speculation is rife in the market that Schulze along with some private equity players might take over the company, as he is exploring options for his 20.1% ownership stake in the company.

Best Buy has long been struggling with sales declines in key categories including televisions, notebooks, digital imaging and gaming devices, which in turn, is taking a toll on the company’s same-store sales results.

Moreover, heightened competition from online retailers like Amazon.com Inc. (AMZN - Analyst Report) is also adversely affecting its sales and profitability as the online retailers are gradually encompassing new merchandise categories under their purview and offering huge discounts on products with free shipping services to attract customers.

A few months back, Best Buy’s CEO Brian Dunn resigned abruptly, following an internal probe relating to his improper relationship with a female employee.

However, investors can take heart from the fact that measures are being taken to steer the company through these difficult times. For one, the company had announced a string of strategic measures to boost its long-term profitability.

With its multi-channel strategy, the company intends to enhance its store formats while increasing its global footprint. Best Buy, through its cost reduction program, intends to generate $800 million in costs saving by fiscal 2015, including $250 million in fiscal 2013.

Best Buy also plans to accelerate the growth of its business in Chinathrough a combination of growth in connections and services and digital capabilities. Best Buy expects to open 50 new Five Star stores in China in fiscal 2013, while it plans to generate $4 billion in sales and increase the store count to 400 - 500 by fiscal 2016.

Despite these strategies, the resignation of the Best Buy’s founder amid turmoil will definitely hamper investor’s confidence on the company.

Best Buy appointed Hatim A. Tyabji as the new chairman of the company.

Currently, we have a long-term Neutral recommendation on the stock. Moreover, Best Buy, which faces competition from Wal-Mart Stores Inc. (WMT - Analyst Report), holds a Zacks #3 Rank that translates into a short-term Hold rating.