Best Buy (NYSE: BBY) Back From the Brink

Best BuyJust a year ago, tech retail giant Best Buy (NYSE: BBY) was facing such battered prospects that many speculated if they’d even be in business today. Naysayers said they’ve turned into showrooms for Amazon (NASD: AMZN), and brick and mortar stores couldn’t compete with the prices e-commerce sites could often. While Best Buy has surely faced it’s share of challenges, it’s prospects look bright and better times may lie ahead.

Best Buy remains the largest specialty electronic retail store in the world. The stores sell electronic devices such as televisions, DVDs, video equipment and digital cameras. The company has a market cap of $11.92 billion, and its stock price is around $35, a stark contrast from last year.

Best Buy reported second quarter earnings for the period ending on July 31, on August 20. The store reported sales of $9.3 billion, which was a 13% decrease from revenues of $10.5 billion, in the second quarter of 2012. The company’s net income was $237 million, a big year-over-year improvement from net income of $14 million in 2012. The store reported earnings per share (EPS) of $0.77 up from EPS of $0.04 in the second quarter of 2012.

Best Buy struggled during 2011 and 2012 primarily because of stiff competition from online retailers along with the discount retailers like Wal-Mart Stores Inc. (NYSE: WMT) and Target Corporation (NYSE: TGT). However since Hubert Joly has taken over, things seem to be getting better. The company has still seen a loss in revenues partially because it closed underperforming stores, but its profits are up, and so are its margins. The company’s second-quarter gross margins increased to 26.5% beating analyst’s estimates of 23.3. In addition, the company’s net profits increased to 27.4% from 24.3% last year. Hubert Joly commented during the second quarter earnings call, that, “While we are clear there is much more work ahead, we have made measurable progress since we unveiled Renew Blue last year, including near flat comparable-store sales, substantive cost take outs, and better-than-expected earnings in the past three consecutive quarters.”

Best Buy’s finances are in relatively good shape for a struggling retail company and do not appear to be in a slide towards demise as many once worried. It turns out they won’t be taking the path of Circuit City, their once largest competitor that ultimately succumbed to bankruptcy, at least for now. The company ended the quarter with $1.91 billion in cash and $1.68 billion in debt. Its operating cash flow during the quarter was $1.83 billion. The company has made remarkable progress in the past year, and very much seems to be a great turnaround story.