Drop in electronics demand bad omen for holiday retail

November 19, 2015 09:59 AM

Best Buy Co Inc forecast a revenue decline for the crucial holiday quarter and reported lower-than-expected quarterly sales due to weak demand for mobile phones, tablets, repair services and warranties.

Shares of the number one U.S. consumer electronics chain fell nearly 6 % on Thursday.

Chief Executive Officer Hubert Joly on an earnings conference call attributed the results for the third quarter ended Oct. 31 to weakness in the consumer electronics industry. Target Corp on Wednesday said a double-digit decline in its quarterly electronics sales curbed its online sales growth.

"Industry declines that we saw in the third quarter, both sequentially and year-over-year, may continue throughout this year's fourth quarter," Joly said.

The retailer forecast a low single-digit percentage decline in revenue and an operating income rate drop of 25 to 45 basis points for this quarter. Also, new Geek Squad services would have a negative gross profit rate impact.

Best Buy said its same-store sales rose 0.5 % in the third quarter, excluding the impact of installment billing plans. Analysts on average had expected a rise of 0.8 %, according to research firm Consensus Metrix.

The company's revenue from services such as repairs and extended warranties also fell.

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

While a decline in Sears Holdings Corp's store count and the bankruptcy of competitor RadioShack Corp have benefited Best Buy, online retailer Amazon.com Inc still poses the biggest threat as more people increasingly opt to shop online.

Best Buy said that so far this year it cut $110 million in annualized costs as part of its "Renew Blue" turnaround plan.

Net income attributable to Best Buy shareholders rose nearly 17 % 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.

Revenue fell 2.3 % to $8.82 billion primarily because of the Canadian brand consolidation, store closures and foreign currency fluctuations. Analysts had forecast $8.83 billion.

Best Buy shares were down 5.7 % at $29.54 in morning trading. At Wednesday's close, the stock had fallen about 19 % this year.

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