Will Best Buy Restructuring Be Enough?

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Best Buy announced on Wednesday it would remove a number of senior managers as part of its restructuring plan, but will it be enough to turn around the struggling retailer?

"At this point, it's going to be tough for anybody to come in and make the changes necessary to really make this business ever viable in the long-term future," said R.J. Hottovy, an analyst at Morningstar, on CNBC's "Squawk on the Street."

This restructuring does not necessarily come as a surprise given new CEO Hubert Joly's reputation for turning around companies, Hottovy said in a report on Thursday. He added that a "leaner organization will make it easier to initiate certain turnaround efforts."

Still, the company's warning of softer-than-forecast third-quarter results suggest that Joly faces an uphill battle in making the electronics company more competitive, the report said.

Best Buy faces several obstacles in its effort to adjust to increased consumer spending via e-commerce, including stiff price competition from Amazon.com, Wal-Mart Stores, and warehouse clubs such as Costco Wholesale.

"Right now, the fact of the matter is Best Buy just has too many stores, their cost structure is too bloated and they can't compete on a pricing basis," Hottovy said.

Manufacturers, such as Apple and Samsung, and wireless carriers including AT&T and Verizon Wireless, have intensified Best Buy's competition as they develop their own retail channels. As a result, they rely less on Best Buy as a distributor.

"You are still seeing distribution through Best Buy, but over the next couple of years, there is less and less incentive to go through this channel," he said.

Although Best Buy stock plummeted following the restructuring and guidance announcement, Hottovy does not plan on changing his $16 fair value estimate right now, even though the preliminary results "fell well short of our already pessimistic expectations and consensus expectations."

Morningstar analysts plan to wait until the company's analyst and investor event Nov. 1 to make any possible changes to their estimates.

Founder and former chairman Richard Schulze's efforts to take the company private also loom over Best Buy's restructuring efforts. In early October, a report indicated that Schulze and at least four private-equity firms have began examining the company's financials.

"While equity funding commitments remain the key question in bringing a formal offer to the board, we are starting to believe that current shareholders may be more receptive to Schulze's previously disclosed offer of $24 to $26 per share than we previously believed, based on the disappointing third-quarter results and today's sell-off," the report said.

—By CNBC.com's Katie Little; Follow her on Twitter @katie_little

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Disclosures:

R.J. Hottovy does not own shares of Best Buy.

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