Best Buy CEO Joly Reveals Key Priorities in Turnaround Plan

Best Buy CEO Joly Reveals Key Priorities in Turnaround Plan

Among his priorities: “Stabilize and then begin increasing” same-store sales, and “achieve over time” an operating margin of between 5 and 6 percent and a 13 to 15 percent return on invested capital.

On Tuesday morning, just prior to addressing analysts and investors, Best Buy Company CEO Hubert Joly outlined key priorities of his turnaround plan, which the company is calling “Renew Blue.”
 
According to a company-issued news release, a short-term goal of the Richfield-based electronics retailer is to “stabilize and then begin increasing” same-store sales and operating margin.
 
For its most recent fiscal year, Best Buy’s same-store sales slid 1.7 percent—and the company recently announced that it expected same-store sales to fall 3 to 5 percent during its third quarter, which ended November 3.
 
Meanwhile, Joly—who took the reins in September—aims to “achieve over time” an operating margin of between 5 and 6 percent and a 13 to 15 percent return on invested capital.
 
For its most recent fiscal year, Best Buy had an operating profit margin of about 2.1 percent; for its second quarter, the most recent for which data is available, its margin was down to 0.3 percent. According to a report by CNBC, the company’s margin hasn’t exceeded 5 percent since the fiscal year that ended in early 2008.
 
The company reported an 11.1 percent return on invested capital during the second quarter.
 
Joly cited as the company’s key strengths its position as “the leader in a growing and fragmented market,” the company’s “stable or growing” market share in most product categories, its “highly skilled and engaged work force,” and its large customer base, which includes 40 million active members of its loyalty program.
 
However, Joly conceded that Best Buy’s recent performance has been “unsatisfactory in a number of areas.”
 
For example, he said that the company has been too slow to capture its “fair share” of the online market, that there is “room for improvement” when it comes to customer satisfaction, and that Best Buy suffers from a “price perception issue.”
 
He concluded that those trends, combined with store additions during the recession and low returns from acquisitions, have led to a decline in return on invested capital.
 
Thus, his stated priorities for the company are:
 
• Reinvigorate the customer experience, including better defining the company’s brand identity and promise, changing the design of its online platform and physical stores accordingly, and putting the “pedal to the metal” in terms of investment in the digital space.
• Attract, grow, and inspire “transformational” leaders, and energize employees to deliver positive results for stakeholders.
• Work with vendor partners to innovate and drive value.
• Increase the company’s return on invested capital by growing revenue, becoming more efficient, and taking a disciplined approach to allocating capital.
• Continue “positively impacting our world and making it a better place,” partly through the company’s electronics recycling efforts and by helping teenagers access technology.
 
Best Buy’s recent turnaround effort has thus far involved shuttering big-box stores, shifting emphasis to smaller Best Buy Mobile locations, and cutting thousands of jobs.
 
Joly’s growth plan comes at a time when founder Richard Schulze, who resigned from the board earlier this year following a scandal involving former CEO Brian Dunn, is putting together a bid to take the company private.

The Star Tribune recently reported that a bid could come as early as this week, although Reuters said that Schulze’s offer is likely to come in December, and it may be below the previously expected $8 billion range, as the company’s stock price has fallen significantly since Schulze first announced plans to attempt a takeover.