From a troubled retailer doing the right thing by bringing back its disgruntled founder to a video game retailer offering up uninspiring guidance, here’s a rundown of this week’s best and worst moves in the business world.
Best Buy (BBY) — Winner
It’s back to business at Best Buy. Founder Richard Schulze — unceremoniously booted from the chain’s board last year — has returned.
Weeks after his bid to take the company private fizzled, the consumer electronics retailer’s board is letting him back in as chairman emeritus. He’s also nominating two of his former top executives for board seats: ex-CEO Brad Anderson and ex-Chief Operating Officer Al Lenzmeier.
The olive branch from the chain to its founder comes at a time when Best Buy could use more harmony. It isn’t easy selling electronics out of bricks-and-mortar stores when online retailers are cheaper. It’s even harder to sell media items like music and movies at a time when distribution has gone digital.
However, with Schulze still in possession of 20 percent of the company’s stock, it was important to have him buy into the new CEO’s vision, and bringing him and two of his seasoned execs back will give Best Buy the best shot at a potential turnaround.
GameStop (GME) — Loser
If operating a consumer electronics store is hard, imagine specializing in video games.
GameStop is in an industry that has suffered three years of declining sales, and there’s little reason to expect that to change. The leading standalone retailer of video games posted decent holiday quarter results on Thursday morning, but it was the guidance that spooked investors. GameStop now sees earnings for the new fiscal year clocking in between $2.75 a share and $3.15 a share. This is less than the $3.17 a share that it just rang up in the fiscal year that ended in January, and well short of the $3.42 a share that Wall Street was targeting for the new year.
Why did analysts believe that GameStop’s profitability would continue to grow in this unfavorable climate? The midpoint of GameStop’s guidance calls for a 4 percent decline in sales this year, and that may be generous.
Dollar General (DG) — Winner
It pays to be thrifty. Dollar General is doing so well that even Moody’s Investors Service is feeling more upbeat about the discounter’s creditworthiness. The credit rating agency boosted its call on Dollar General’s debt two levels to “investment grade” status.
This isn’t just the kind of stuff that mom pins up on the refrigerator. Having a better credit rating will make it easier for Dollar General to secure funding in the future at more attractive interest rates.
The move came after Dollar General posted better than expected quarterly results for the holiday quarter, offering up encouraging guidance that points double-digit growth in sales and earnings for the year ahead.
It wasn’t a perfect week for Dollar General. The retailer of household staples at deep discounts stumbled on Wednesday after some insiders chose to cash out in a secondary stock offering. However, the strong report and credit rating boost make Dollar General a retailer worth saluting this week.
ZIOPHARM Oncology (ZIOP) — Loser
Buying into young biotech companies is always a gamble, but it’s an even bigger one when the company has nearly everything riding on a single drug in late-stage clinical trials.
ZIOPHARM Oncology was easily this week’s biggest loser in the markets, shedding nearly two-thirds of its value after its once promising treatment for soft tissue cancer failed to deliver favorable results in its late-stage trial. It’s back to the beginning as ZIOPHARM shifts focus to “synthetic biology” treatments, which it’s developing in partnership with Intrexon.
Netflix (NFLX) — Winner
As high as Netflix shares have gone in recent months — more than tripling since bottoming out this past summer — one analyst sees more upside.
Pacific Crest’s Andy Hargreaves is boosting his price target on the stock from $160 to $225.
His fortified enthusiasm comes from new projections that find as many as 36 million domestic subscribers to the popular streaming service by 2015, and 46 million by 2021. That’s a lift from his previous estimates, and a major climb from Netflix’s 27 million stateside streaming customers today.
Then again, maybe he’s just looking forward to the “Arrested Development” revival that will stream exclusively through Netflix in May.
Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends Netflix. The Motley Fool owns shares of GameStop and Netflix. Try any of our newsletter services free for 30 days.