For those of you still living in a consumer electronics world of cartwheels and lollipops, Best Buy (BBY) just may have burst your last bubble.
The company announced Q3 comps will decline at a rate similar to the past two quarters (-5.3% Q1 and -3.2% Q2). Just an educated guess Q3 ending Nov. 3 may be at the lower end of that range. Profitability continues to work against the company as gross margins are estimated to be down 100 bps or more due to product mix, product transitions and I am sure some other reasons will come up.
Oh, and did I mention Best Buy is going to save the day by offering free shipping on out-of-stock productS as well as price matching? You think you have seen the worst of gross margins? Think again. The Grinch is just getting warmed up.
New Best Buy CEO Hubert Joly is also making changes to the leadership organization. Let me rephrase. The senior ranks of the U.S. operation are being shown the door. This will result in a "leaner organization" and is "intended to improve agility." So, the current president of U.S. Best Buy is gone (but will help with a smooth transition because people shown the door always really want to help). EVP of U.S. Operations is also out. Not that you can argue with getting rid of management that has presided over 65% stock plunge over the past five years, but seriously, after CEO Brian Dunn departed (in a bit of a scandal) are there any adults left running the place?
Joly is not exactly a seasoned chief executive after fewer than two months on the job. I know he wore a blue shirt for a while, but it might take a little longer to solve the biggest problem in retail (show-rooming). And now the mobile "connectivity" guy will run the U.S. retail channel?
Best Buy will do its best on Nov. 1 in New York during its analyst day to convince us why it has a future. All I can say is this should be up there with the last few JC Penney (JCP) Ron Johnson analyst days, convincing us of the biggest transformation in retail.
And for those still touting the cash flow story? Yes, Circuit City was once a cash flow story too. Until, of course, it wasn't.