Another Miss, Another Repurchase

 | Sep 13, 2011 | 2:20 PM EDT
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Today we learned that, once again, Best Buy (BBY), the gigantic electronics retailer, missed its numbers. The stock got clobbered for doing so. The company simply can't sell enough merchandise at the right price and it has clearly lost its way. It seems to have no idea how to right the sinking ship.

But that's not the whole story. Despite missing numbers endlessly for years now, Best Buy has bought back millions and millions of shares during this terrible decline. Instead of taking that cash flow and trying to reinvent the business, it has been frittering away the capital in a profligate, foolish attempt to keep its stock up.  

In a world filled with companies that moronically keep buying back their stock with nothing to show for it, Best Buy may be one of the most egregious of all these buyback sinners. The average this company has paid of course, is dramatically higher than here. The company states that the buyback is a way to boost earnings. Yet, no one is fooled. This simply hasn't worked. The money's been totally squandered for no good reason. The company seems doomed to go down the Circuit City path to oblivion. To me, Best Buy has become a place to go to test TV screens for good resolution before you buy them at Amazon (AMZN). Nothing more. I am calling it "Best Browse" from now on.

And what has the company learned about its ridiculous attempt to boost earnings through buybacks? Nothing. Nothing at all. The company has nothing to show for it, yet it just keeps patting itself on the back for these buybacks, and it did so again today in its earnings release.   

Does the company not look at its stock price? Does it not see that it hasn't worked? Three years ago the company had 452 million shares and the stock was trading at $46. Going into today the company had shrunk the share count to 373 million shares, and the stock now stands at $23. How is that positive? How can CEO Brian Dunn say, with a straight face, "We are very pleased to announce this new share repurchase program that underscores our commitment to enhancing returns for shareholders," as he said earlier this year in describing his latest $5 billion attempt to keep the stock afloat.  

It gets worse. In fiscal year 2009, when the stock hit $17 as part of the great recession, what did BBY do? It bought back nothing.

Does Dunn not see that the money would have been better spent reinventing itself? Does he not see that it could have continued to raise its dividend and would have done so much better for shareholders? At least, that would have that rewarded people for sticking with the company if and when it ever turns around. 

In the end, here's what happens. BBY keeps buying and buying and buying and, ultimately, it uses all of its money up and can't buy any more. It's disgraceful.

And, I can't believe they don't recognize it and instead keep praising what it's done for shareholders. What exactly has it done for shareholders?

Best Buy has now become the poster boy for the stupidity and outrageousness of buybacks.

They should be ashamed.


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