The Three Areas You Must Watch
Running a physical location is expensive compared to running a website, and if a bricks-and-mortar company attempts to match prices with those websites, it may quickly find itself drowning in red ink. But if customers pick up accessories along with price-matched goods, as well as warranties and installation services, the tactic could turn around the trends pushing the company toward bankruptcy.
Also, as Best Buy ramps up and bets its future on the mobile store format, margins will give a glimpse into how these new stores perform, and whether Best Buy can successfully transform from big-box locations into more nimble storefronts.
- Free cash flow.
As long as cash flow is positive, Best Buy has a chance. It can keep paying interest on its debt and invest in the transformation of its business model. But if free cash flow drops, look out. The year before Circuit City liquidated its stores, it had negative free cash flow of $371 million.
- Management plans.
Hubert Joly may have a track record for turnarounds, but he has yet to enlighten stockholders on his plans for Best Buy. Also, with the shakeup in management, stability in top positions is key if the company has a chance, especially if it wants to focus on improving culture and customer service.
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The article The 3 Areas You Must Watch at Best Buy originally appeared on Fool.com.Fool contributor Dan Newman has no positions in the stocks mentioned above. The Motley Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.