Best Buy Co. is losing one of the key architects of its turnaround strategy, leaving investors to wonder whether it is played out.
Shares of the Richfield-based electronics retailer dropped 7.4 percent Tuesday as investors adjusted to the double whammy of the departure of Chief Financial Officer Sharon McCollam and a forecast for lower-than-expected profit in the summer months.
McCollam will slip back into an early retirement after three and a half years as Chief Executive Hubert Joly’s co-pilot in reviving Best Buy. She won the confidence of investors by cutting more than $1 billion in costs and managing expectations for the company’s quarterly performance through several periods of volatility.
“Congratulations, Sharon,” Simeon Gutman, an analyst for Morgan Stanley, said on a conference call with executives. “We’d welcome you out of retirement any time.”
Two months after joining Best Buy himself, Joly recruited McCollam, who had retired after years as a top executive at Williams-Sonoma. On the day of her appointment in November 2012, Best Buy’s shares were trading at $15.85. The stock nearly tripled the following year, slipped in early 2014 to $25, climbed again and has been in the $30 to $40 range for the past year. On Tuesday, it closed at $30.55, down $2.45.
McCollam, 54, became legendary within Best Buy’s headquarters for having a deep and granular knowledge of the company’s departments, so much that she stopped leaders in the hallways to suggest ways to make their divisions more efficient.
She also led an overhaul of Best Buy’s supply chain, overseeing an effort a couple of years ago to turn all of its stores into fulfillment centers, which helped the company pare shipping costs while also getting packages to customers more quickly.
Still, while Best Buy made a number of strides including becoming profitable again, it struggled to consistently grow sales amid competition from online retailers and the down cycles in various products, most notably the recent slowdown in smartphone sales.
“We’ve always known that Sharon would not be here forever,” Joly told reporters on a conference call, noting that her husband never moved to the Twin Cities and still lives in California. He added, “Sharon will be a best friend forever for me and for Best Buy. We’re so happy for her to be able to go back to retirement and spend time with her husband.”
Joly said the company’s focus on cost-cutting was not a “one-person show” and would continue after she leaves. It’s in the middle of a three-year effort to find $400 million in savings, a follow-on to the $1 billion in costs it slashed earlier.
McCollam will be succeeded by Corie Barry, who was groomed by McCollam over the past few years. A 16-year company veteran, Barry was elevated last year to chief strategic growth officer. “This is a great leader, a perfect CFO for Best Buy,” Joly said.
The timing of the executive changes, Joly said, was triggered by the fact that Best Buy had identified a strong candidate to become chief strategic growth officer during the search for another executive role. Asheesh Saksena, a Cox Communications executive, will take over Barry’s previous role.
McCollam, who will remain an adviser to Best Buy through the year, thanked Joly for his partnership and said she was reassured that the company is in good hands.
Some analysts concluded her departure signaled Best Buy’s turnaround work was largely done.
“A good bit of the heavy lifting associated with the turnaround has been accomplished, in our view, and we think Sharon has a strong team that can step up,” David Magee, an analyst with SunTrust Robinson Humphrey, wrote in a research note.
The executive change overshadowed Best Buy’s better-than-expected results for its fiscal first quarter. While the company had forecast a 1 to 2 percent sales decline due to lower tablet and smartphone sales, its comparable-store sales in the U.S. dropped just 0.1 percent. Strong sales of health and wearable products, TVs and appliances helped offset the weakness in other categories. Online sales rose 24 percent in the quarter.
For the quarter ended April 30, profit rose to $229 million, up from $129 million in the same quarter a year ago. Adjusted for one-time expenses, Best Buy earned 44 cents a share, up from 37 cents a share, which was better than the 35 cents analysts had expected. Revenue dropped 1.3 percent to $8.4 billion.
Executives did not lift their outlook for flat sales for the full fiscal year, noting that the first quarter represents just 15 percent of its full-year sales. Best Buy is hoping that new product launches, such as a new iPhone, could help spark growth this fall.
The company also noted that the recent earthquake in Japan could lower the availability of digital cameras in the May-to-July period.