Best Buy profit falls on consumer pullback
The largest electronics retailer says that same-store sales and profit have dropped from a year earlier. What does this mean for the holidays?
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.
Post continues below video:
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.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The stock market began the new trading week on the defensive note with small-cap stocks pacing the retreat. The Russell 2000 (-1.4%) and Nasdaq Composite (-1.1%) displayed relative weakness, while the S&P 500 lost 0.8% with all ten sectors ending in the red.
Global equities began showing some cracks overnight after China's Finance Minister Lou Jiwei poured cold water on hopes for new stimulus measures. Specifically, Mr. Lou said the government has no plans to change ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
VIDEO ON MSN MONEY
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'