By Dhanya Skariachan
NEW YORK Jan 16 Best Buy Co shares
tumbled about 30 percent on Thursday after the world's largest
consumer electronics chain reported disappointing holiday sales
and warned of a bigger-than-expected decline in quarterly
The company blamed intense discounting by rivals, tight
supplies of phones and high-end tablets industrywide, and weak
traffic in December.
The news, which knocked off almost $4 billion of Best Buy's
market value, was the latest evidence that holiday sales at many
chains came at the expense of profit.
"It just seems that the promotions did not drive incremental
sales, that opening on Thanksgiving just added costs," Janney
Capital Markets analyst David Strasser said.
Adding to the pressure on Best Buy, he said, was the
"promotional cadence of troubled retailers" like Sears,
Toys R Us Inc and smaller electronics chains.
Best Buy cut prices sharply in November and December to
thwart competition from Wal-Mart Stores Inc, Amazon.com
Inc and other chains. The electronics specialist said
on Thursday that it continued to discount in January.
Best Buy's stock, one of 2013's hottest, was down 27.6
percent at $27.19 after touching a low of $25.99 earlier in the
session. Heading into Thursday, only one out of two dozen
analysts covering the stock had a "sell" rating on it.
Shares of consumer electronics peers such as RadioShack Corp
and Hhgregg Inc also fell.
The overall weakness in the consumer electronics industry
was a "shock for everyone," Best Buy Chief Executive Officer
Hubert Joly said, but insisted that the company's own turnaround
was not at risk.
"Since the beginning, we've seen this transformation as a
multiyear journey, and we are in the early innings of this ball
game," he said.
Joly, who joined the company in the fall of 2012, has
removed layers of management, eliminated hundreds of jobs,
closed unprofitable stores and boosted cash by selling Best
Buy's stake in a European joint venture with Carphone Warehouse
So far, he has taken out $550 million in annualized costs,
and he said he saw room to make the company more efficient by
reducing and better managing the items that are returned by
Best Buy also plans to do more to personalize its email
marketing efforts, especially since it has a database of 40
In what many on Wall Street called the most promotional
holiday season since the recession, shoppers were bombarded by
too many emails from retailers, making it harder for Best Buy to
stand out, Joly said.
Best Buy had warned in late November that its decision to
discount more could hurt margins. But some analysts had then
expected the chain to offset some of the margin pressure through
cost cuts and market share gains.
MARGINS VS. MARKET SHARE
Heavy discounting ate into profits, and Best Buy expects
operating margin, excluding special items, to be 175 to 185
basis points lower in the fourth quarter ending Feb. 1 than a
year earlier. Credit Suisse analyst Gary Balter said that
outlook was well below Wall Street expectations.
The discounting, however, boosted Best Buy's market share at
a time when overall industry sales fell, Joly said, citing data
from NPD Group.
Best Buy's sales at stores open at least 14 months were down
0.9 percent in the United States and up 0.1 percent
internationally in the nine weeks ended Jan. 4. Total revenue
fell about 2.6 percent to $11.45 billion.
Declines in sales of digital imaging, movies, MP3 players
and other products more than offset strong demand for computers,
appliances and gaming devices, the company said.
Best Buy's online segment was a bright spot in the otherwise
weak report. Domestic online revenue was $1.32 billion, and
comparable online sales rose 23.5 percent.
During the most recent holiday season, Best Buy offered free
shipping for online orders of more than $25 and made its website
easier to navigate.
The company also shipped directly from more than 400 stores
this season to compete with retailers like Amazon.com and
Wal-Mart. It is now expanding that service to its 1,000 big box
stores, Best Buy said on Thursday.