Best Buy profit falls on consumer pullback

People aren't ready to spend money again on flat-screen televisions and other electronics. And that resulted in a very slow summer for Best Buy (BBY).

Profit fell 30% for the quarter ended Aug. 27, missing expectations and leading the retailer to lower its full-year earnings guidance. Shares were clobbered Tuesday, falling more than 7% in midday trading to $23.09.

Shares fell below $23 at different points today, reaching a new 52-week low. The stock has plunged more than 35% in one year.

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The largest electronics retailer said it faced "challenges to overall consumer spending and lower consumer electronics industry sales."

Profit dropped to $177 million, or 47 cents a share, down from $254 million a year earlier. Analysts were looking for 52 to 53 cents a share. Revenue was essentially flat from a year earlier at $11.35 billion. That again disappointed analysts, who expected $11.47 billion.

Same-store sales -- a key retail indicator -- dropped 2.8% from a year earlier.

Best Buy lowered its earnings outlook for its fiscal 2012 to between $3.35 and $3.65 a share. But those numbers get a little help from share buybacks, which pack on 20 to 25 cents per share. Excluding the share buybacks, the outlook is down significantly from the company's earlier estimate of $3.30 to $3.55 a share. Analysts were expecting around $3.44 a share.

Best Buy can thank Apple (AAPL) for some help in the quarter. Sales of tablets and e-book readers were strong in the U.S., the company said. And the only tablet anyone's buying now is the Apple iPad.

But there was a long list of weak sellers, including TVs, video games and cameras. Mobile phone sales fell 5%, mostly because there weren't many new phones out in the quarter. One of those missing phones was the delayed iPhone, so maybe Best Buy shouldn't be thanking Apple after all.

The numbers don't bode well for the upcoming holiday season, when consumer spending is expected to be tight. Electronics retailers will have to fight hard for each dollar, and that means spending more money on promotion and advertising. Best Buy saw its gross margin drop to 25.3% from 25.7% in the quarter.

"The consumer electronic business is going to be extremely competitive this holiday season," one analyst told Dow Jones. "People's income levels are pressured so in order to stimulate demand, retailers and manufacturers are going to be extremely promotional."

But Best Buy put on a brave face, with chief executive Brian Dunn saying that the company is "well positioned" for the holidays.

Best Buy ran into similar problems last year, amid falling U.S. demand for TVs, notebook computers and video games. Shoppers turned to Wal-Mart (WMT) and Target (TGT) for TVs when those stores cut prices dramatically over Black Friday weekend.

Best Buy didn't cut prices until December. Also that month, it finally cut its 15% restocking fee on returned electronics items. It was all a little too late.

Can the company improve on its holiday performance this year? The economic backdrop is bleak.