The past five years have been anything but an easy ride for the world's largest bricks-and-mortar electronics retailer Best Buy (NYSE: BBY ) , and things aren't about to get easier anytime soon. Yet shares of the ailing company are up by more than 93% since the beginning of the year, making it the third best-performing stock on the S&P 500 year to date. And they're continuing to rally today, up by as much as 2.44% in earlier intraday trading.
Today's move caps a long-fought battle between Best Buy's current leadership and its founder and former CEO, Richard Schulze. In May 2012, Schulze resigned as Best Buy's chairman after an internal investigation revealed that he had been aware of a former CEO's extramarital affair with a 29-year-old female subordinate. Brian Dunn, the executive in question, stepped down abruptly the previous month after the full board learned of the allegations from a human resources executive.
Since then, Schulze has pursued multiple options to take Best Buy private. He first informed the company of his plans last August by asking the board to consider a $10 billion buyout. By the end of last month, however, after allegedly failing to find willing financiers, he abandoned his plans. This left many analysts to conclude that Schulze would sell his 20% stake in the company, thereby driving down its share price. After today, however, that fear seems unfounded.
Early this morning, Best Buy announced that Schulze will rejoin the retailer as chairman emeritus. Under the terms of the agreement, two of his former colleagues will accompany him on the board, one of whom was previously the company's CEO and the other its COO. As Schulze noted in prepared remarks: "My dedication to the company that I founded and love is unwavering and, together with [current CEO Hubert Joly] and the Board, I determined that the best way to support Best Buy would be to return in support of the initiatives underway."
Although today's announcement arguably alleviates fear over a short-term decline in Best Buy's stock, the problems ahead for the company remain in place. On the bricks-and-mortar front, it has to compete with the likes of Costco, which has a loyal customer base and, unlike Best Buy, is known for superior customer service and a generous return policy. And online, its waging a losing war with Amazon.com, which is able to sell all of the same products at significantly lower prices thanks to lower overhead expenses.
Indeed, it's for the same reasons that Barnes & Noble has found itself in the crosshairs of bankruptcy. While Best Buy and Barnes & Noble were once first movers and respected giants of their unique niches, they're now looked upon as the walking dead. The issue is no longer if they'll survive but how long they'll be able to hold on. This is why two of our top analysts are passionately pessimistic about Best Buy's ability to recover from its 50% stock decline over the past few years, claiming that it will "never be great again."
Is Best Buy a value or a value trap?
The brick-and-mortar vs. e-commerce battle wages on, with Best Buy caught in the middle. After what might have been its most tumultuous year in history, there are now even more unanswered questions about the future for the big-box electronics retailer. How will new leadership perform? Will old leadership take the company private? Will a smaller store format work out for both the company and its brave investors? Should you be one such brave investor? To help answer all these questions, The Motley Fool has released a new premium research report detailing the opportunities -- and the risks -- in store for Best Buy. Simply click here now to claim your comprehensive report today.
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