Best Buy's move to exit Europe has many on Wall Street hoping the big box retailer does the same in China.
The company sold its stake in a European joint venture to Carphone Warehouse Group this week for less than half of what it paid five years ago. Despite the loss, investors welcomed the news and sent shares up to their highest level in a year.
Many are betting that the next move for the world's largest consumer electronics chain will be out of China, where it has struggled to fend off local rivals and failed to carve a niche in a cluttered market. That unit has also been without a leader for more than a month.
"They are really struggling in China, much more so than they were in Europe," said BB&T Capital Markets analyst Anthony Chukumba, who predicted the company could divest its assets there later this year. "There are no strategic benefits to them being in China."
Chief Executive Officer Hubert Joly said in a statement on Tuesday that the European deal "should not suggest any similar action" in other overseas markets, but he has emphasized since starting last fall that he wants to focus on the United States.
Best Buy declined to comment on whether it eventually would sell its Chinese operations, which accounted for only 3.5 percent of its sales in the most recent financial year. China contributed to 4.1 percent of annual sales in the prior year. Best Buy would not break out China's contributions to the bottom line.
The company told Reuters on Wednesday that it has hired a Chinese national to replace Nicolas Wang, who had been CEO of Best Buy's Five Star business but left in March. It plans to make the formal announcement soon. But the appointment may not be enough to win over support of the overseas business.
"I think that they would still be better off getting out of China," said Janney Capital Markets analyst David Strasser. "The less distraction they have in turning around the U.S. business, the better off they are."
Pulling out of China would leave Best Buy without access to one of the world's premiere growth opportunities.
But it would enable Best Buy to focus on the United States, something for which investors have lobbied. The move also could give the retailer more cash to invest in businesses with better growth prospects such as mobile and e-commerce.
"China has never been particularly profitable for them, and if they feel they can't make that happen, then of course it would be better to try to monetize that holding rather than for them to continue to lose money," said Jerry Bruni, portfolio manager of JV Bruni & Co, which owns Best Buy shares.
In 2012, Best Buy had 1.8 percent of the Chinese market, while local rivals Suning and Gome had 10.6 percent and 10.3 percent respectively, according to Euromonitor International.
Struggling in China