UPDATE 2-Best Buy shares tumble on weak holiday sales, margin forecast
NEW YORK, Jan 16 (Reuters) - Best Buy Co Inc shares fell more than 28 percent on Thursday after the No. 1 consumer electronics chain reported a drop in holiday sales and forecast a bigger-than-expected decline in quarterly operating margins.
The Minneapolis company cited intense discounting by rivals, tight supplies of tablets and phones, and weak traffic in December for the disappointing report, which was the latest evidence that holiday sales at many retailers came at the expense of profit.
Best Buy decided to cut prices sharply to thwart competition from Wal-Mart Stores Inc and other rivals in what turned to be one of the most promotional seasons since the recession.
"We would look for further clarity on the weak gross margin dollars, and why we did not see better sales given the competitive stance Best Buy took," said Credit Suisse analyst Gary Balter. He said the operating margin outlook was well below Wall Street expectations.
Best Buy expects operating margin, excluding items, to be 175 to 185 basis points lower in the current fiscal fourth quarter than a year earlier.
"The promotional intensity that began with Black Friday continued throughout the period," said Chief Executive Officer Hubert Joly, who now expects the additional discounts to lead to a drop in margins.
The discounting, however, boosted Best Buy's market share at a time when overall industry sales fell, Joly said, citing data from research firm NPD Group.
Best Buy's sales at stores open at least 14 months were down 0.9 percent in the United States and up 0.1 percent internationally in the nine weeks ended Jan. 4. Total revenue fell about 2.6 percent to $11.45 billion in that time.
Declines in digital imaging, movies, MP3 players and other products more than offset strong demand for computers, appliances and gaming devices, the company said.
Best Buy's online segment was a bright spot in the otherwise weak report. Domestic online revenue was $1.32 billion, and comparable online sales rose 23.5 percent.
During the holiday season, Best Buy offered free shipping for online orders over $25 and made its website easier to navigate. The company also shipped directly from more than 400 stores this season to compete better with the likes of Amazon.com Inc and Wal-Mart.
Best Buy shares were down 28.1 percent at $27 in premarket trading.