Best Buy suffers as tech shoppers turn thrifty

Tue Sep 13, 2011 1:38pm EDT

A man walks past televisions for sale at a Best Buy store in New York November 23, 2010. REUTERS/Mike Segar

A man walks past televisions for sale at a Best Buy store in New York November 23, 2010.

Credit: Reuters/Mike Segar

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(Reuters) - Best Buy Co (BBY.N) reported weaker-than-expected quarterly results and cut its profit outlook for the year as shoppers held off on buying televisions and other nonessential items in the anemic U.S. economy.

Tuesday's news pushed the top electronics chain's shares down more than 8 percent to their lowest level since December 2008, and highlighted the fragility of recovery in the world's largest economy.

Best Buy said that profit in the year will be as much as $3.45 a share, excluding share repurchases, down from its prior forecast of as much as $3.55 a share. It still expects revenue of $51.0 billion to $52.5 billion.

The retailer has seen sales slow in markets such as Europe and Canada as well.

"Looking at the big picture worldwide, we're still facing an uncertain macro environment with volatile consumer shopping behavior," CEO Brian Dunn said on a conference call.

Most than a quarter of Americans expect to spend less during the holidays this year, a survey showed, in an early sign that retailers will have to try harder to win shoppers this holiday season.

Best Buy is also a victim of a lackluster product cycle and cut-throat competition from chains such as Wal-Mart Stores Inc (WMT.N) and Internet retailers like Amazon.com Inc(AMZN.O).

Amazon's prices on televisions remain 12 percent to 14 percent below Best Buy's, Deutsche Bank analyst Mike Baker said recently.

"People are savvy and will comparison-shop online," Wedbush analyst Michael Pachter said. "There's nothing Best Buy can do except lower its cost structure by getting out of big-format real estate and open some smaller stores."

In the quarter, Best Buy's gross margin fell again.

This "raises the question about whether price is the primary weapon to drive sales, a worrisome longer-term scenario for a company with a massive investment in infrastructure and major efforts to grow the service side of the business," Credit Suisse analyst Gary Balter said.

CEO Dunn fought back. "I think the core fundamental thesis that investors are missing about us right now is that this world isn't moving to a place where it's digital all by itself or physical all by itself, neither alone will be sufficient," he said.

Best Buy shares were down $1.71 at $23.25 Tuesday afternoon on the New York Stock Exchange. They touched a three-year low of $22.75 earlier in the day.

CHASING ONLINE SHOPPERS

Best Buy has now decided to offer products online from other sellers through its new third-party Marketplace as it tries to better compete with Amazon and online auctioneer eBay Inc (EBAY.O).

On Tuesday, Dunn welcomed Amazon's agreement to start collecting sales tax in California next year.

"We see it as a march to the inevitable leveling of what has been an unfair playing field," Dunn said.

The retailer, seen as a bellwether in consumer electronics, said its second-quarter sales were essentially flat at $11.3 billion. Analysts expected about $11.5 billion.

Sales at stores open at least for 14 months fell 2.8 percent in their fifth straight quarterly decline.

The results echoed those from smaller rival hhgregg Inc (HGG.N) as well as office supply chains Office Depot Inc (ODP.N) and OfficeMax Inc OMX.N, which reported weak sales of technology products in the key back-to-school season.

Second-quarter net profit fell to $177 million, or 47 cents a share, from $254 million, or 60 cents a share, a year earlier. Analysts on average were expecting 53 cents a share, according to Thomson Reuters I/B/E/S.

Shares of Best Buy were down $2 at $22.96 on the New York Stock Exchange.

(Reporting by Dhanya Skariachan and Liana Baker in New York, editing by Gerald E. McCormick, Dave Zimmerman, Lisa Von Ahn and Gunna Dickson)

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Comments (2)
tdscreener wrote:
I had stopped purchasing from Best Buy a while ago, ever since they started charging restocking fee for a gift my brother bought me the prior day…..I can buy the same from Sams, Walmart, Staples, Costoco, Amazon with satisfaction guaranteed…Best Buy doesn’t have the best price to begin with……Why bother with a big-box store with a cheap customer service ?

On second thought, no wonder Best Buy can’t compete against Amazon…..the biggest advantage of the brick-and-mortar is the ability to easily return an item if it is not what we want……They apparently can’t figure out who they are to begin with….

Sep 13, 2011 1:34pm EDT  --  Report as abuse
Restless wrote:
Actually Best Buy should have some employees on hand to increase sales. They had a 7 day wait to back up a crashed hard drive for $100. I went to Staples. Not online. Got my hard drive backed up in 2 hours for $60 at Staples then bought my new laptop the same day at Staples. Lost sale on the part of Best Buy (my previous Laptop was from Best Buy). I asked the Best Buy techie why there was a 7 day wait (this enconomy is not lacking in potential workers). He said that it was because of Senior Management Staffing rule on how many hours they can work. Poor Management execution – not competition.

Sep 13, 2011 2:16pm EDT  --  Report as abuse
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