What's behind Best Buy's sweet Apple deals
Foiling pundits' predictions, Best Buy (BBY) CEO Hubert Joly saved the largest consumer electronics retailer from oblivion at the hands of rivals such as Amazon (AMZN). The 56-year-old native of France now hopes to gain an edge against its formidable rival during the holiday season with some sweet deals on Apple (AAPL) products.
Under a holiday promotion unveiled Friday, Best Buy customers can get a 16 GB iPhone 6s for $1 through Sunday, if they sign up for a two-year contract with Sprint (S) or Verizon (VZ). The chain has also has deals on Apple Watches, iPads, iMacs and MacBooks.
This promotion underscores Joly's strategy of refusing to give any ground when it comes to price, especially against Amazon. He began a price-matching policy in 2013 in an effort to combat "showrooming," the practice of customers looking at merchandise at their retailer only to purchase it online at a lower price.
Shares of Minnesota-based Best Buy have surged more than 152 percent over the past three years, indicating that investors' faith in Joly has been rewarded. Heading into the holidays, though, Best Buy reported disappointing earnings and spooked investors after warning that holiday sales would decline.
Best Buy shares have given back some of those gains, with the stock price dropping more than 25 percent since January. Other retailers such as Walmart (WMT) and Target (TGT) are also struggling in the consumer electronics market because of weak demand for tablets, among other reasons.
Joly made improving the company's floundering financial performance a priority when he was hired in 2012 after predecessor Brian Dunn was ousted for having an affair with a subordinate. Company founder Richard Schulze resigned from the retailer's board after failing to inform his fellow members about Dunn's misconduct. Schulze then tried and failed to take the company private. He has reconciled with Best Buy since then and is now chairman emeritus.
Under Joly's leadership, Best Buy has recorded five straight quarters of positive comparable-store sales, a key retail metric measuring the performance at locations opened for a year or more. Gross margins have improved on a year-over-year basis for four quarters. The chain has also slashed more than $1 billion in costs and plans to cut another $400 million through operations improvements. It has also revamped its online operations by allowing customers have their online purchases shipped to a store.
"We are again impressed with management's ability to drive traffic in an extremely competitive environment, while maintaining costs," Michael Pachter, an analyst with Wedbush Securities who rates the stock as "neutral," wrote in a note distributed to investors last month. "However, the acid test of the sustainability of Best Buy's turnaround will be its ability to profitably compete this holiday, as we expect Amazon to aggressively compete for market share."
Many on Wall Street, however, haven't lost faith in Joly. Of the 23 Wall Street analysts who cover the stock, which trades at about a 34 percent discount to its average 52-week price target of $38.94, 13 rate it ether a "buy" or a "strong buy."
A Best Buy spokeswoman declined to comment for this story.