Investopedia: Best Buy Needs To Tune Out The Haters

Much to the chagrin of a lot of shorts, hedge funds and commentators, Best Buy (NYSE:BBY) stubbornly refused to go out of business this past quarter. That's hyperbole, of course, but perhaps not by much - there is no shortage of commentary out there saying that Best Buy is utterly doomed, needs to close stores and/or start subletting space in order to survive. (Learn more in The 4 R's Of Investing In Retail.)


While it is true that Best Buy is indeed going through some hard times and it likewise true that consumer buying preferences have changed, a panicked attempt to pacify institutions is not what the company or its shareholders need. Best Buy is still producing positive cash flow has not yet reached a point of no return.

Challenging and Disappointing Second Quarter Results
That is not to say that Best Buy is doing well, as it clearly is not. Revenue was flat for this quarter (the company's fiscal second quarter) despite a nearly 3% decline in comp-store sales. Although domestic sales were down (down 1.5% on a 2.7% comp decline), international sales rose 4.6% despite a greater-than-3% decline in comps.



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Investopedia: BJ's Goes Bye-Bye

To see the announcement that BJ's Wholesale Club (NYSE:BJ) had agreed to sell itself was only slightly more surprising than Thursday following Wednesday. For starters, this warehouse retailer has been a laggard behind Wal-Mart's (NYSE:WMT) Sam's Club and Costco (Nasdaq:COST) for quite some time and laggards in attractive industries are always appealing takeout candidates. What's more, rumors, speculations, aborted offers and announced intentions have been preparing shareholders for a deal for at least a few years now.

The Deal That BJ's Got
BJ's announced that it will sell itself to private equity parties Leonard Green & Partners and CVC Capital Partners in an all-cash deal worth $2.8 billion. That means $51.25 per share - only about a 7% premium to Tuesday's close, but a 38% premium to the price before LGP took a significant ownership stake and very close to the all-time high for these shares.

Even at this price, though, BJ's is not exactly bowing out with a premium valuation. At only a little more than six times trailing EBITDA, BJ's is going at a valuation close to slow-growing Wal-Mart and Target (NYSE:TGT) and well below rival Costco and a wider universe of value-oriented retailers like Family Dollar (NYSE:FDO) and Dollar General (NYSE:DG). What is interesting, too, is that on a discounted cash flow basis this price does not anticipate much in the way of dramatic improvement - if LGP and CVC can really turn this business around, they will get the vast majority of the benefit.

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