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Best Buy CEO is dumping stock to pay for his divorce

Best Buy CEO Hubert Joly is selling $10 million of stock in his company, but experts predict Best Buy's stock will continue to rise in price. So why is the Best Buy CEO selling now? It's personal.

By Dhanya SkariachanReuters / September 11, 2013

Shoppers visit a Best Buy store in Hialeah, Fla., Aug. 19. The Best Buy CEO recently sold off over $10 million in Best Buy stock.

Alan Diaz/AP

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NEW YORK

Even though Best Buy's stock has tripled this year, riding on the success of CEO Hubert Joly's turnaround strategy, many on Wall Street think the retailer's resurgence isn't over. So why is the Best Buy CEO selling? 

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"This sale reflects only one thing: Mr. Joly has recently gone through a divorce and needs to sell a portion of his holdings in order to cover the costs of that unfortunate event," spokesman Jeff Shelman said in a statement. "He remains heavily invested in Best Buy."

Joly raised about $10.4 million through a share sale to help cover costs for his recent divorce, a regulatory filing showed. He sold his shares at about $37 per share. 

Investors and analysts say Joly's turnaround initiative – anchored by sharp cost cuts – could boost the stock further, especially because shares still trade at a discount compared with peers. The US-based electronics chain faces fierce competition from the likes of Wal-Mart Stores Inc and Amazon.com Inc but is showing signs it can compete against them.

Analysts say Joly can boost earnings further if he takes more costs out, strikes favorable deals with more vendors and change the perception among many shoppers that Best Buy's prices are higher than those of Wal-Mart and Amazon.

How times have changed. A year ago, Best Buy's share price was near a nine-year low, sales were in free fall and management was in disarray after the departure of Chief Executive Officer Brian Dunn under the cloud of an ethics probe into his inappropriate relationship with a female employee.

Fast-forward to this summer, when the company posted its first profit in a year, confirming that Joly's turnaround plan for the world's largest consumer electronics chain is working. Net earnings rose to $266 million in the second quarter ended Aug. 4, up from $12 million in the same quarter a year earlier.

Joly, who took Best Buy's helm in September 2012 after heading hospitality firm Carlson for four years, has already cut $390 million in costs by removing layers of management, eliminating hundreds of jobs and closing some unprofitable stores.

He also persuaded vendors Samsung and Microsoft to open their own boutiques in Best Buy stores, making more efficient use of space and improving customer service.

Joly and Chief Financial Officer Sharon McCollam have also boosted cash by $1.2 billion, including $650 million from the sale of Best Buy's stake in a European joint venture with Carphone Warehouse.

"We are very happy with the progress we have seen to date," said Benjamin Nahum, a portfolio manager with Neuberger Berman LLC, which owns and plans to stick with Best Buy's shares. "We think there's more to come."

Wall Street sees Best Buy stock rising further to touch at least $50, up from its current level of $38. The stock trades at 14.4 times forward earnings and represents a 17.3 percent discount to the peer average, suggesting it has room to rise.

"It is a relatively cheap stock," Janney Capital Markets analyst David Strasser said. "It still provides the most compelling value in my space."

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