Layoff of 2,400 Workers Will Not Help Best Buy

By Douglas A. McIntyre Published Jul 9, 5:59AM EDT

Best Buy (NYSE: BBY) recently laid off 2,400 people. Wall St. has watched for a much more substantial sign, on the heels of years of poor performance and the departures of both its CEO and its chairman and founder, that the company knows it is in trouble. The number of people laid off is tiny — Best Buy has 180,000 workers. Until the company radically restructures both its stores and employee base, investors have no reason to be cheered.

Rumors that founder and former chairman Richard Schulze may attempt to buy the entire company generated some investor enthusiasm recently. He owns 20.1% of outstanding shares. Best Buy probably does not have the earnings to support a leveraged deal at a price Schulze and any buyout group would have to pay. Based on Best Buy’s current market capitalization of about $7.3 billion, Schulze would need to offer a 50% premium to match the stock’s 52-week high. An offer of $11 billion would be very difficult to support based on the huge retailer’s annual net income of about $500 million.

The only way Best Buy can regain investor confidence is to demonstrate that management realizes it has too many stores to retain high margins. Best Buy made $158 million in its most recently reported quarter on revenue of $11.6 billion. Best Buy has 1,335 locations worldwide. It stands to reason that a retailer with such a tiny margin has a number of stores that operate at a loss. There is no justification for keeping all of those locations instead of concentrating on ones that make a substantial amounts of money. Best Buy could signal that it understands store volume is not the key to better profits and a higher stock price. Per-store profit is.

Best Buy will need to lay off many more than 2,400 to show it understands it has too many stores and will act accordingly.

Douglas A. McIntyre

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.