Photographer: David Paul Morris/Bloomberg

Best Buy Falls After Predicting Slow Holiday Season Sales

  • Retailer sees weakness in U.S. demand for electronics
  • Third-quarter revenue slid more than analysts' estimated

Best Buy Co. shares fell after the retailer’s sales missed estimates, raising doubts about its turnaround bid and the health of the broader electronics industry.

Revenue slid 2.4 percent to $8.82 billion in the quarter that ended Oct. 31, the Richfield, Minnesota-based company said in a statement Thursday. Analysts had estimated $8.83 billion. For the current quarter, Best Buy expects revenue to decline at a low single-digit percentage rate, hurt in part by the closings of Canadian stores.

The company sees U.S. consumer-electronics demand continuing to weaken, stoking fears about a category that used to be a solid performer during the holidays. Both Target Corp. and Wal-Mart Stores Inc. also reported disappointing sales of gadgets and other technology earlier this week. Demand for tablets -- a hot product in past years -- has been particularly weak.

“From an industry standpoint, there was a significant decline in that,” Best Buy Chief Executive Officer Hubert Joly said on a conference call.

Turnaround Plan

As the world’s largest electronics chain, Best Buy has the most to lose from the shift. The slump also brings a higher hurdle to Joly’s three-year comeback attempt. He initially focused on cutting costs, including selling off foreign divisions in China and Europe. But investors have been waiting for the company to show stronger revenue growth, and Best Buy disappointed on that front this quarter. Same-store sales only rose 0.8 percent, trailing the 1 percent gain analysts had estimated.

The shares declined 2.1 percent to $30.67 in New York on Thursday. Best Buy has dropped 21 percent this year.

Even as sales missed expectations, earnings beat projections last quarter. Profit was 41 cents a share, excluding some items. Analysts estimated 35 cents.

Super Bowl

One of the drags on sales this quarter will be that some of the purchases tied to the Super Bowl will shift to the first quarter, Best Buy said. That’s because the game is being played later than last year.

In an interview, Joly pointed out that industrywide sales of U.S. consumer electronics tracked by NPD Group fell 4.3 percent during the third quarter while Best Buy’s same-store sales rose, meaning that the chain gained market share. The company expects a similar decline in the industry for the current quarter. The categories tracked by NPD, which include computers and televisions but not phones and appliances, represent about 65 percent of Best Buy’s domestic revenue.

“That’s why I say we are crushing it,” Joly said. “We are winning in the market.”

As for the selloff in the stock, Joly said the negative sentiment created by other retailers’ results has distracted from the progress Best Buy is making. The company has more space dedicated to top brands like Apple and Sony and is situated the best to sell burgeoning categories such as connected home devices, ultra-high definition television and wearable computers. The company also is revamping its e-commerce operations and adding more space for services such as home-theater setup.

“We all have to recognize the nature of this industry is to have some volatility,” Joly said.

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