Best Buy shares tumble on weak holiday sales, margin forecast

Thu Jan 16, 2014 12:37pm EST
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By Dhanya Skariachan

NEW YORK (Reuters) - Best Buy Co (BBY.N: Quote) 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 operating margins.

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 SHLD.O, 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 (WMT.N: Quote), Inc (AMZN.O: Quote) 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 RSH.N and Hhgregg Inc HGG.N also fell.   Continued...

People walk past a Best Buy store in New York August 21, 2012. REUTERS/Brendan McDermid