Best Buy cuts views on weak sales
Best Buy said a slowing economy will hurt profits and it reduced its yearly guidance, as consumers held back on high-end TVs, digital music players and cameras.
The nation’s largest consumer electronics retailer said holiday sales were strong but fell off in January. Comparable-store sales rose 1.5% in December, but they will decline modestly for the full fourth quarter, Best Buy said on Friday.
"The macro-economic environment grew more challenging after the holidays," said interim Chief Financial Officer Jim Muehlbauer in a statement.
Best Buy now expects earnings to be $3.05 to $3.10 per share for the full year, down from previous guidance of $3.10 to $3.20 per share. Analysts polled by Thomson Financial expected $3.16 per share.
Best Buy shares fell $1.68, or 3.7%, to $44.09 in midday trading.
Yet in an investor note titled, "There Will Be Blood" Credit Suisse analyst Gary Balter wrote that "if the quality and segment leader is struggling, one can only imagine how poorly others in the space are doing, with Circuit City (CC, Fortune 500) being top of mind. That is very positive for the longer term" for Best Buy.
He also said Best Buy’s increasing international presence will reduce its exposure to a U.S. recession. And he wrote that projected earnings fell about the same as comparable-store sales, "suggesting limited margin deterioration."
Best Buy said it expects lower fourth-quarter revenue for categories including home theater, digital music devices and cameras, and video gaming, caused by a shortage of game consoles in January payday loans. It said it was selling more notebook computers than expected.
Despite the slowdown, Best Buy said it will open 130 to 160 stores worldwide during the upcoming fiscal year, in part to grab more market share. The openings will include 20 to 25 new Five Star stores and five to eight new Best Buy stores in China, in addition to the one already open in Shanghai.
Best Buy (BBY, Fortune 500) acquired a controlling stake in China’s Five Star appliance chain in 2006.
"We’re consciously choosing not to pull back on our investments, even in a difficult economy, because we are making the bet that the opportunities are rich, over the longer term," said vice chairman and CEO Brad Anderson in a statement. "When the U.S. economy regains its momentum, we believe that our results will show these to be good investments."
Richfield-based Best Buy Co. Inc. expects revenue of nearly $40 billion for the year ended March 1. Analysts expected revenue of $40.2 billion.
For the year, the company said it expects sales in stores open at least one year to rise 2.5% to 3%, from earlier guidance of 4%.