Best Buy previously has previously been associated with the likes of Circuit City, its defunct big box electronics retail competitor, in addition to J.C. Penney ( JCP) and Sears Holdings ( SHLD), two nationwide retail basket cases that have seen their earnings plummet amid a lack of competitiveness and uncertain restructuring plans. J.C. Penney said on Monday its chief executive Ron Johnson has stepped down and will be replaced by former CEO Mike Ullman. Johnson was brought to the retailer from Apple to help revive the company's stores and implement a new pricing strategy. TheDeal reported on Friday that some of J.C. Penney's vendors have been tightening credit and private equity firms are circling the retailer, citing unnamed industry sources. Comparisons with Home Depot instead of J.C. Penney may be early given the company's post-crisis earnings growth and Best Buy's losses in 2012 and the first quarter of 2013. Still, Balter sees Best Buy's recent announcements such as a store-within-a-store partnership with Samsung and the company's growing importance to product sales by Apple ( AAPL) as reasons for optimism. According to Balter, the Samsung partnership may boost Best Buy's service experience to electronics customers and help to eventually increase profit margins. If the combined service with Samsung increases customer traffic, it could help Best Buy win back leverage from suppliers such as Apple, boosting overall profits. "Think of Home Depot, where consumers and pros treat HD's selection as the premier selection in the home improvement category... The value of that shelf space cannot be underestimated in this relationship. That is a primary reason why HD delivers double-digit margins," wrote Balter, who also cited AutoZone ( AZO) and Bed Bath & beyond ( BBBY) as similar premium retailers. The Samsung partnership "is the first signal that vendors understand the value add that Best Buy can bring to the consumer purchasing process, something which to date has been undervalued by both suppliers and investors," according to Balter.
Were the Richfield, Min.,-based retailer to eventually be associated with a premium experience, it could pressure Apple to make store-in-store displays more supportive of Best Buy. Currently, Balter estimates Apple's space within Best Buy stores carries some of the retailer's lowest profit margins. Best Buy shares traded higher by over 2% in Wednesday trading, closing at a 12-month high of $25.96. The shares were among the biggest gainers on the S&P 500 on Wednesday.
As Best Buy rolls out its Samsung store-in-store concepts, watch for consumer reactions to prove whether newly appointed chief executive Hubert Joly can revive the company's profitability and cash flows. Best Buy shares are the best performer in the S&P 500 with an over 120% 2013 gain, amid increased confidence in the company's turnaround strategy. Those stock price gains compare favorably to Home Depot, which is up over 13% year-to-date. Still, Best Buy shares have a long way to go. While the company's shares are off roughly 40% over the past five years, Home Depot shares have gained over 140%. For more on Best Buy's turnaround, see the company's false junk ratings foundation. Also see why the company is increasingly finding new life after the company's founder Richard Schulze ended six months of takeover negotiations without a formal offer and returned to the company's board of directors as a "chairman emeritus." -- Written by Antoine Gara in New York Follow @antoinegara