Best Buy: Holiday Promotions Could Hurt Margins

By Jennifer Booton Earnings FOXBusiness


Best Buy (BBY) swung to a third-quarter profit on Tuesday but sales declined year-over-year and the retailer expressed cautiousness heading into the highly competitive holiday season.

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The consumer-electronics giant said it will ramp up sales to better compete, including offering “highly competitive prices” and “compelling promotions.”

That includes continuing to match online prices, a method of competing with e-commerce powerhouses like Amazon (AMZN).

Best Buy sees this and other factors negatively impacting fourth-quarter operating margin by 60 to 70 basis points. That’s worse than its prior outlook of a 40-70 point decline.

Shares of the retail giant plunged about 6% to $41.01 in early trade.

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In its most recent quarter ended Nov. 2, the Richfield, Minn.-based retailer reported net income of $54 million, or 12 cents a share, compared with a year-earlier loss of $10 million, or three cents.  

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Excluding one-time items, Best Buy said it earned 18 cents, topping average analyst estimates in a Thomson Reuters poll by six pennies.

Revenue for the three-month period was $9.36 billion, down from $9.38 billion a year ago, matching the Street’s view.

Same-store sales, a key growth metric, increased just 0.3%, with a 6.4% decrease in international markets offsetting a 15.1% improvement in online sales. The company, though, did post its best domestic same-store sales in 13 quarters.

Analysts seemed optimistic that it is positioned solidly despite the potential headwinds, with UBS (UBS) analyst Michael Lasser saying Best Buy is on tap to realize an extended period of EPS growth.

In a statement, Best Buy CEO Hubert Joly said the company remains mindful of the fact it still has "a long way to go," but nevertheless is pleased with its progress.