Best Buy: Holiday Promotions Could Hurt Margins

By EarningsFOXBusiness

Best Buy (NYSE: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 (NASDAQ: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.

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 (NYSE: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.