Market Overview

Best Buy Probes Brian Dunn Scandal

It was revealed on Thursday that Best Buy (NYSE: BBY) is investigating former CEO Brian Dunn following allegations that he used company resources to indulge in an inappropriate relationship with a female employee.

Neither Best Buy nor Dunn are commenting at present, but a source close to Best Buy has told the Minneapolis-based Star Tribune that the company has received multiple complaints that Dunn behaved inappropriately with a female subordinate.

It was Tuesday that Best Buy announced that Dunn had resigned, and the company's stock immediately shot up. The CEO was apparently not a popular figure on Wall Street. That same day, the company said the board was in the process in investigating Dunn's personal conduct. He had been with the company since June 2009.

One would have had to assume on Tuesday, then, that something was seriously amiss. If Dunn was no longer with Best Buy, why would they have to (or want to) go back and trawl through his garbage? The only reason would seem to be that they had been given some information and felt that they had to investigate in order to cover their own backs. We don't, as yet, know anything about the woman who Dunn had set his sights on.

In a report published on Wednesday, Citi said that BBY has further disclosed that the CEO was the subject of an audit committee inquiry. BBY representatives did not have any updated information and indicated the company was still dedicated to putting the newly announced plan (closure of 50 stores, new connected stores in Twin Cities and San Antonio) in place.

Wedbush stated that it believes Best Buy can compete with Internet retailers only if the higher prices it must charge because of its brick and mortar overhead are justified by increased convenience and better service. While it is impossible to be scientific about this, it appears that Best Buy has been losing share to Internet retail with store pricing that averages a 10% premium to online pricing.

Goldman Sachs said that Dunn's resignation comes amid disparate views about growth vs. consolidation (i.e., the rate of cost cuts and store closings); Mr. Dunn rose through the ranks during a period of strong growth, and he may have felt compelled to foster that legacy. BBY responded to challenges concerning store closings, cost cuts and divestitures at a slow pace.

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