November 19, 2015 / 12:28 PM / in 3 years

Best Buy comparable sales down; outlook for holiday season weak

(Reuters) - Retail chain Best Buy Co Inc (BBY.N) on Thursday forecast a revenue decline for the crucial holiday quarter and reported lower-than-expected quarterly comparable sales, citing slower consumer demand for mobile phones and tablets.

Shares of the No. 1 U.S. consumer electronics chain fell nearly 5 percent.

Best Buy’s forecast fed worries among analysts and investors about U.S. consumer holiday spending, with shoppers holding back in one of the strongest gift-giving categories due to a lack of popular electronic products and sluggish wage growth.

“Industry declines that we saw in the third quarter, both sequentially and year-over-year, may continue throughout this year’s fourth quarter,” Chief Executive Officer Hubert Joly said on a conference call.

Target Corp (TGT.N) on Wednesday said a double-digit decline in quarterly electronics sales curbed its online sales growth.

At Best Buy, declines in tablets, mobile phones and digital imaging offset growth in major appliances, wearables and large-screen televisions in the third quarter ended on Oct. 31.

The retailer forecast a low single-digit percentage decline in revenue and a drop in operating income for the fourth quarter. Also, new investments in Geek Squad services would hurt gross profit.

Joly said the benefits from investing in services had started trickling in and would become visible over several quarters.

If demand stays weak during the holidays, he said, some retailers might start doubling down on discounts around January, but Best Buy will not feel compelled to follow them.

The company’s inventories in the third quarter were down 3.6 percent from a year earlier, and Joly said Best Buy was adequately stocked for the holidays and could replenish stock faster.

Best Buy said sales at stores open at least a year rose for the fifth quarter in a row at 0.5 percent in the third quarter, excluding the impact of installment billing plans. Analysts on average had expected a more robust increase of 0.8 percent, according to research firm Consensus Metrix.

Best Buy said gross margin was under pressure due to higher investments in its online business and repair and warranty services division.

Net income attributable to Best Buy shareholders rose nearly 17 percent to $125 million, or 36 cents per share, in the third quarter.

Excluding special items, the company earned 41 cents per share from continuing operations. Analysts on average had expected 35 cents per share, according to Thomson Reuters I/B/E/S.

An employee helps a customer with a television at a Best Buy store in Denver May 14, 2015. REUTERS/Rick Wilking

Revenue fell 2.3 percent to $8.82 billion primarily because of the Canadian brand consolidation. Analysts had forecast $8.83 billion.

Domestic revenue grew 1.2 percent, in part because of a 16.4 percent jump in comparable sales in appliances.

Best Buy shares were down 5.7 percent at $29.54 in morning trading.

Reporting by Ramkumar Iyer in Bengaluru; Editing by Kirti Pandey, Lisa Von Ahn and David Gregorio

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