Best Buy Warns Promotions Could Hurt Holiday Quarter Margins

Best Buy Posts First Quarterly Profit In A Year
Spencer Platt/Getty Images
By Dhanya Skariachan

Best Buy warned of an increasingly promotional environment heading into the holidays and promised to be competitive on price in the biggest selling season of the year, raising concerns about margins in the fourth quarter.

Earlier on Tuesday, discounter Walmart Stores (WMT) announced it will match select Black Friday offers on toys and electronic items from rivals Target (TGT), Toys R Us and Best Buy (BBY), starting as early as a week before the big shopping day.

"If our competition is in fact more promotional in the fourth quarter, we will be too and that will have a negative impact on our gross margin," %VIRTUAL-article-sponsoredlinks%Best Buy Chief Financial Officer Sharon McCollam said in a statement.

The news overshadowed the better-than-expected quarterly profit from the world's largest consumer electronics chain in the third quarter and dragged its shares down 6.6 percent.

Under Chief Executive Officer Hubert Joly, who took the retailer's helm last fall, the company has cut costs by removing layers of management, eliminating hundreds of jobs and closing some unprofitable stores. It has also boosted cash by selling its stake in a European joint venture with Carphone Warehouse Group.

Best Buy's net earnings were $54 million, or 16 cents a share, compared with a net loss of $10 million, or 3 cents a share, a year earlier.

Excluding restructuring charges and other items, it earned 18 cents a share, beating the average analyst estimate of 12 cents, according to Thomson Reuters I/B/E/S.

13 Things You Shouldn't Buy on Black Friday
See Gallery
Best Buy Warns Promotions Could Hurt Holiday Quarter Margins
Black Friday is an excellent time to buy a new TV, as we predict a variety of size categories will hit their lowest price points. But don't expect the best deals to be tagged with name brands. Typically, the rock-bottom prices apply to third-tier manufacturers; brand-name TVs tend to see their best price of the year in late December as manufacturers look to clear stock before revealing 2014 models.
There's no shortage of digital camera deals around Black Friday, but premium current-generation cameras are just a few months away from being replaced by a new line of 2014 models. If you're eyeing a brand new digital SLR, we recommend waiting until after CES and into February for 2013 cameras to become "old," and thus receive aggressive discounts from retailers.
For those of you looking to get a leg up on any fitness New Year's resolutions, you should resolve to wait to buy any fitness equipment. During Black Friday weekend 2012, we listed just two Editors' Choice fitness deals, while December and January each saw more than five times that amount on a variety of gear including heart rate monitors, ab machines, ellipticals, and yoga equipment.
While we don't know anyone who doesn't appreciate a seasonal throw blanket, we don't recommend giving them as gifts this year unless you've got a stock of them in the closet from last season. Not only does holiday decor get cheaper after the holiday in question, but bedding and blankets fall to their lowest prices of the year come January and February during "White Sales," which have been a colorful tradition since the 1950s.
Perhaps better received than throw blankets, gift baskets and wine subscriptions are especially popular during the holidays. But as the giver, you'll get a better deal on specialty foods (i.e. Omaha Steak gift bundles, fruit baskets, and assorted baked goods) if you wait until December; last year we saw twice as many Editors' Choice deals close to Christmas than around Thanksgiving.

If you have your sights set on a trip to California or Florida, by all means purchase airfare around Black Friday and even closer to Christmas; last year we saw up to 50 percent off coupons from Frontier, JetBlue, and Virgin America. However, if it's an international getaway you're after, we advise you to hold off on booking your flight until the new year. Last year, we saw zero Editors' Choice airfare deals between Thanksgiving and New Year's. But in the first two months of the year, Air Canada offered the lowest base rate we'd seen for flights to Toronto; JetBlue took 80 percent off select flights to the Caribbean; and Lufthansa offered roundtrip fares to Europe for $471.

Read Full Story