Shares of Best Buy Co., the world's largest electronics chain, dropped the most in seven months Tuesday after it predicted that sales will continue shrinking for the rest of the year, dragged down by a lack of must-have new gadgets.
Sales fell short of analysts' estimates in the period that ended Aug. 2, declining 4 percent to $8.9 billion for a 10th straight quarterly drop. Same-store sales will decrease by a "low single digit" rate in the third and fourth quarters, Richfield, Minn.-based Best Buy said in a statement.
Chief Executive Officer Hubert Joly has made good on his promise to reduce expenses since arriving in September 2012, helping the stock more than triple last year. Since then, the shares have slipped as investors raised questions about whether Joly could execute the second part of his turnaround plan by reviving sales growth.
"Industrywide sales are continuing to decline in many of the consumer electronics categories in which we compete," Chief Financial Officer Sharon McCollam said in the statement. "Absent any change in these declining industry trends and with limited visibility to new product launch quantities, we continue to expect comparable sales to decline."
Best Buy shares dropped $2.19, or 6.9 percent, to close Tuesday at $29.80. The shares had fallen 20 percent this year through Monday, compared with an 8.1 percent gain for the Standard & Poor's 500 index.
Net income fell 45 percent to $146 million, or 42 cents a share, last quarter, from $266 million, or 77 cents, a year earlier, Best Buy said. Excluding some items, profit of 44 cents topped the 31-cent average of analysts' projections compiled by Bloomberg. That marked the sixth straight time the company topped estimates. A year earlier, profit excluding a one-time gain from a lawsuit settlement was $112 million, or 32 cents.
Profit was helped by more cost reductions. Joly has set a goal of trimming $1 billion in annual expenses through several initiatives, including improving the supply chain and negotiating cheaper store leases. Best Buy cut $40 million in annual costs last quarter, bringing the total to $900 million.
The cost cutting "bodes well for future quarters once Best Buy sees higher demand from product innovation," Kate McShane, an analyst for Citigroup Inc. in New York, said in a note to clients.
Last May, McCollam said that "lack of innovation" was partly responsible for weakness in demand for consumer electronics, leading shoppers to wait longer to buy new phones, tablets and televisions.
Best Buy reported Tuesday that same-store sales in the U.S. declined 2 percent, in line with the rest of the industry. Sales in the NPD-tracked consumer electronics categories -- which includes TVs, tablets and personal computers -- declined 2.5 percent, Best Buy said.
When including international stores, Best Buy's same-store sales fell 2.7 percent. Analysts projected a drop of 2.2 percent, the average of 22 estimates, according to Consensus Metrix. Same-store sales, which at Best Buy include online revenue, are considered a key measure of a retailer's performance because new and closed stores are excluded.
Joly has said he's counting on the latest devices from Apple Inc. and 4K televisions, which have four times the resolution of current displays, to help. Apple is expected to introduce new iPhones next month while Samsung Electronics Co. and Sony Corp. are pushing 4K within revamped Best Buy home theater departments.
Best Buy is "encouraged" by consumers' response to 4K TVs, although their effect will be limited this year, Joly said Tuesday. While prices are declining, they are still too high for the majority of shoppers, he said on a conference call with analysts. Best Buy sells 4K sets on its website ranging from $1,000 to $25,000.
Business on 08/27/2014