Best Buy‘s second-quarter earnings are in, and they are rough.
The company's operating income slid 52 percent from the same time last year, to $124 million. And its earnings per share from that operating income dropped to 20 cents a share, badly missing the average analyst estimate of 31 cents a share, according to Thomson Reuters.
And in a worrying sign for investors, it has suspended its stock repurchases and will refrain from giving out earnings guidance for the rest of the year. Furthermore, it doesn't have much of a financial cushion, with its cash plunging 67 percent from the year-ago period to just $680 million. It expects to generate about $1.25 billion to $1.5 billion in free cash flow for its current fiscal year.
The steep slide in Best Buy's shares in premarket trading - down 8.8 percent so far - may give the struggling retailer's founder, Richard Schulze, hope in his quest to buy back the company. He has argued that Best Buy needs to start t alking with him now, before it loses even more value.
People close to the company, however, have countered that his proposal, worth up to $8.8 billion, simply doesn't seem financially feasible. Such a bid, they say, would require too much debt and a surfeit of equity capital that they don't believe he can raise.
Arguably, Mr. Schulze helped lift Best Buy's stock by coming public: Since he unveiled his takeover offer on Aug. 8, the company's shares have risen, though they remain well below his preliminary offer of $24 to $26 a share.
And so far, investors appear unhappy with the retailer's pick to lead its own turnaround plan, the former hospitality executive Hubert Joly. Shares in Best Buy plunged more than 10 percent on Monday, after his hiring was announced.
Best Buy is likely to argue on its earnings call that Mr. Joly is a proven corporate turnaround expert, with experience in helping to resuscitate both Vivendi and Electronic Data Systems. It wi ll probably ask for time to carry out its plan to revitalize its operations on its own. And, for what it's worth, it will argue that its sales come primarily from the back half of any given year, as many retailers do.
The bigger question is whether investors will give them the time to pull itself together.
