Moody's changes outlook on Best Buy to 'Negative'

NEW YORK (AP) -- Moody's Investors Service on Tuesday updated Best Buy Co.'s outlook to "Negative" from "Developing" and reaffirmed its investment-grade rating as the electronics retailer tries to turn around its business.

Best Buy has been working for some time on a plan to help it cope with increased competition from online retailers and discount stores. That plan includes closing stores, cutting costs and investing in training its employees. It also recently sold its stake in Best Buy Europe. As a result, the Richfield, Minn., company reported better-than-expected adjusted earnings and revenue last week for its fiscal first quarter.

Moody's had changed Best Buy's outlook to "Developing" from "Stable" in 2012 as the retailer's battle for market share got particularly fierce and a former chairman made a bid to take the company private. The rating agency said Tuesday that this latest change is based on increased clarity on its plans and its "solidifying" operating performance.

Senior Analyst Charlie O'Shea said Tuesday that Best Buy has shown that while its competitive position remains formidable, it faces challenges going forward with respect to maintaining this position as it completes its strategic transition.

The company's "Baa2" investment-grade senior unsecured rating was affirmed, based in part from the proceeds that will come from the sale of its stake in the European business.

Moody's noted that this liquidity should give Best Buy some flexibility as it executes its plan. The agency said it expects the company's profile will continue to improve over the next year to year and a half.

Best Buy's shares increased 46 cents to $26.49 in afternoon trading Tuesday amid a broader market gain.