By Drew FitzGerald
Best Buy Co. on Thursday warned that weak demand for consumer
electronics and declining prices will weigh on sales over the next
six months, rekindling investor worries about the chain's long-term
profitability and sending its shares tumbling.
The electronics chain said domestic sales would be flat to
negative for the first half of the year. At the same time, Best Buy
also said its profitability will suffer during the period as it
plans to spend heavily on store improvements.
Shares of Best Buy plunged 14%, its biggest one-day fall since a
year ago, when the company reported a dismal 2013 holiday season
that erased nearly a third of its market value.
The expected slowdown this year overshadowed its results for the
holiday season when domestic sales rose 3.4%, excluding newly
opened and closed stores, for the nine-week period ending Jan. 3.
The company credited popular home-theater systems and mobile phones
for those gains.
Best Buy had warned that the holiday season would be highly
promotional and that sales in the fourth quarter would be flat. The
company has eked out stronger profits thanks largely to cost cuts,
but the business still faces pressure from online rivals and
discounters like Wal-Mart Stores Inc. and Target Corp., chains that
can forgo some profits on electronics to attract shoppers who will
stay to buy clothing and groceries.
The company also said rivals' price cuts and fewer purchases of
extended warranties, a highly profitable business, would hurt
earnings in the coming year. The same TVs and handsets that helped
boost Best Buy sales over the holiday won't continue at the same
level, Best Buy Chief Financial Officer Sharon McCollam said in a
statement. "We are also appropriately cautious about the
pressures," Ms. McCollam said.
Best Buy didn't detail how it will target its new investments,
though executives have pumped up spending in recent months on
marketing, delivery infrastructure and worker training. The company
is slated to report quarterly results in March.
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com
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