Best Buy surprises with weak holiday sales, bleak forecast

Best Buy Co Inc (BBY.N) reported an unexpected decline in same-store sales for the holiday quarter and warned of another surprise drop this quarter, highlighting electronic retailers' ongoing struggles with competition from online stores.

Best Buy, the No.1 U.S. electronics retailer, blamed lackluster demand for tablets, wearable devices and mobile phones, the markets for which are highly saturated.

"We don't expect significant growth in (mobile phones) from a market standpoint" Chief Executive Hubert Joly said on an analyst call on Wednesday, adding that buying a phone at any retailer was a "painful" experience.

STOCK PRICE FOR BBY

Full price information

Best Buy also cited weak sales of gaming consoles, something that also weighed on video game retailer GameStop Corp (GME.N), whose results were hit by players downloading games instead of buying them in stores.

U.S. brick-and-mortar retailers are under pressure from slow economic growth as well as competition from the likes of Amazon (AMZN.O). Underscoring the pain, electronics retailer hhgregg Inc (HGGG.PK) is reportedly expected to file for bankruptcy this month.

Joly said, without naming the company, that the potential bankruptcy would free up $1 billion in revenue to be shared across the industry, although this would not be "transformative" for Best Buy.

The company shares were down 4.5 percent on Wednesday, nearly identical to their decline a day earlier, when retailers across the board fell in sympathy with Target Corp (TGT.N) after it gave a dismal full-year forecast.

"We think lackluster mobile, some product outages, and worse gaming (in a quarter that matters) are the forces at work -- not a sudden shift to a less relevant BBY," Consumer Edge Research retail analyst David Schick.

RELATED: Notable stores that no longer exist like they used to:

8 PHOTOS
Notable stores that no longer exist like they used to
See Gallery
Notable stores that no longer exist like they used to
Signage is displayed at a Filene's Basement store in Chicago, Illinois, U.S., on Wednesday, Nov. 16, 2011. Bankrupt discount-clothing retailer Syms Corp. and its Filene's Basement LLC unit won court approval to conduct going-out-of-business sales to liquidate their inventory. Photographer: Tim Boyle/Bloomberg via Getty Images
A Circuit City store is seen in Dallas, Texas in this file photo taken June 19, 2008. U.S. electronics retail chain, Circuit City is considering closing at least 150 stores and cutting jobs, the Wall Street Journal said on October 20, 2008, citing people familiar with the company. REUTERS/Jessica Rinaldi/Files (UNITED STATES)
NORRIDGE, IL - JANUARY 30: KB Toys signage is visible atop the entranced to its store January 30, 2004 in Norridge, Illinois. Pittsfield, Massachusetts-based KB Toys says it will close 375 stores nationwide including this Norridge, Illinois store. (Photo by Tim Boyle/Getty Images)
ALEXANDRIA, VA - AUG 14: An Ames Department Store stands August 14, 2002 in Alexandria, Virginia. Ames Chairman and CEO Joseph R. Ettore in announced that the discount chain would close all 327 store locations leaving 22,000 unemployed. (Photo by Mike Theiler/Getty Images)
The Blockbuster movie rental store is open for business in the Denver suburb of Broomfield, Colorado April 6, 2011. Dish Network Corp won Blockbuster Inc in a bankruptcy auction for about $320 million, boosting the satellite TV provider's online features and marketing reach. Dish, the second-largest U.S. satellite TV company after DirecTV, trumped at least three other bidders, including activist investor Carl Icahn, for the one-time leader in video rentals. REUTERS/Rick Wilking (UNITED STATES - Tags: BUSINESS)
A Sports Authority store is shown in Encinitas, California on March 2, 2016. Sports Authority Inc. said it had filed for Chapter 11 bankruptcy protection and hired liquidators to begin closing up to 200 of its 463 locations. REUTERS/Mike Blake
Customers walk into the Hollywood Video store that is scheduled for closing in Springville, Utah, U.S., on Wednesday, May 12, 2010. Movie Gallery Inc., the owner of Hollywood Video stores, plans to shutter operations and liquidate assets after filing for bankruptcy for the second time since 2007. Photographer: George Frey/Bloomberg via Getty Images
HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

SALES HIT

Best Buy kept a tight lid on costs in the fourth quarter, which helped its net income increase 27 percent

However, sales at the company's stores open for more than a year fell 0.7 percent in the fourth quarter, widely missing the increase of 0.5 percent analysts polled by research firm Consensus Metrix were expecting.

Best Buy said it expects sales at its established stores to drop 1-2 percent in the current quarter. Analysts were expecting an increase of 0.7 percent, according to Consensus Metrix.

The company's revenue fell to $13.48 billion from $13.62 billion in the quarter ended Jan. 28, missing analysts' estimate of $13.62 billion, according to Thomson Reuters I/B/E/S.

Joly said the unavailability of some products could have cost Best Buy about $200 million in sales, while Samsung Electronics' (005930.KS) Galaxy Note 7 smartphone recall took an identical toll.

But, with fewer planned cost cuts and innovative new electronics on the horizon, analysts have voiced concerns that 2018 could be a tough year for Best Buy, which has relied on buybacks to drive earnings per share growth.

Best Buy on Wednesday accelerated its share buyback plan to $3 billion over two years from $1 billion over two, and also hiked its quarterly dividend.

(Reporting by Richa Naidu in Bengaluru; Editing by Savio D'Souza)

Read Full Story

Can't get enough business news?

Sign up for Finance Report by AOL and get everything from retailer news to the latest IPOs delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.