Best Buy CEO Hubert Joly deserves major credit for figuring out how to stop the bleeding at an electronics retail chain that had been left for dead. But that doesn't mean he's figured out how to breathe new life into the business.
Saving a company from implosion is one thing. Setting it on a path for growth is an entirely different proposition. And the latter question is what's vexing investors.
Best Buy shares fell by as much as 5 percent Monday after Joly disclosed he had cut his stake by 44 percent, raising investor fears that the company's turnaround has run its course and there's little upside from here.
Joly has taken tough action to resuscitate the flagging retailer and boost profit margins, cutting costs, closing stores, and selling off foreign divisions. Its stock has gone up by 73 percent since he was named CEO in August 2012 -- a day when Joly's lack of retail experience led to a one-day stock drop of 10 percent.
A Best Buy spokesman on Monday rejected the notion Joly has any "desire" to leave his role. But his timing is certainly notable.
Sales at the retailer have slowed. Shares are down 9 percent in the past year. Needle-moving product launches have all but evaporated. And analysts have started to question how much more in costs the company can cut.
Amid a mixed earnings report at the end of May, Best Buy announced CFO Sharon McCollam would step down from her post in June but remain an adviser to the company. McCollam is credited with driving a lot of the company's cost-cutting and supply-chain and online improvements. Analysts took her departure as a sign Best Buy's progress is "limited from here," according to Citi analyst Kate McShane, who subsequently downgraded the company to "neutral" from "buy."
McShane isn't alone: The company is now trading at 10.6 times forward earnings, below its historical average of a 12.6 multiple. But analysts' 12-month price targets have fallen by 23 percent, on average, over the past year to $34 -- not far from Best Buy's closing price on Monday of $31.33.
Meanwhile, longtime board member Brad Anderson, who was CEO from 2002 to 2009, announced he would retire from the board in June. And Best Buy founder and Chairman Emeritus Richard Schulze, still the biggest shareholder with nearly 14 percent of the company, has been quietly selling large amounts of his stock.
Key figures leaving their posts and selling shares, at a time when sales are slowing and stock gains have petered out, could certainly all be coincidence. But the likelier explanation is that the biggest benefits of a well-executed turnaround are starting to run out -- and that shareholders should follow.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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