MINNEAPOLIS - Best Buy said Thursday that it had disappointing sales during the Christmas shopping season, raising concerns about the consumer electronic retailer’s ability to turn around its business.
Shares tumbled 27 percent on the news, showing that investors are increasingly worried about Best Buy’s future. Best Buy’s stock price had more than quadrupled last year, but had been down 7 percent since the beginning of this year.
The Christmas season is a critical period for retailers because it can account for up to 40 percent of their annual revenue. But this season was marked by weak consumer spending and heavy sales promotions by retailers.
Best Buy was struggling even before Christmas because of increased competition from online stores, notably Amazon.com, and discounters such as Wal-Mart. But under Chief Executive Officer Hubert Joly, Best Buy started a turnaround strategy that included revamping merchandise, training employees and cutting costs.
Best Buy went into the Christmas season saying it was unafraid of “showrooming,” when consumers check out items in stores and then purchase them for cheaper online. It also said it would match prices of all retailers, including cheaper online rivals, but that policy ultimately led to an unexpected sales decline.
Joly, also said there was a lot of competition on price and an “intensely promotional” environment. He said Best Buy’s business was also hurt by supply constraints for key products, a drop in customer traffic and a disappointing mobile phone market.
Additionally, Joly said there was an overall decline in the consumer electronics market that no one was expecting. According to research firm NPD Group, consumer electronics sales fell 2.4 percent to $22.9 billion during the nine-week Christmas shopping period.
As a result, total Best Buy revenue for the nine weeks that ended on Jan. 4 slipped 3 percent to $11.45 billion from $11.75 billion. Domestic revenue declined to $9.75 billion from $9.91 billion, while international revenue fell to $1.7 billion from $1.85 billion.
Meanwhile, sales at stores open at least a year - a key indicator of a retailer’s health - fell 0.8 percent. But that was better than the 1.4 percent decline in the previous-year period.
“Best Buy is in a much better position than it was a year ago,” said Morningstar analyst R.J. Hottovy. “In my mind, the shares now more accurately reflect very competitive retail environment that will be present in the years to come.”
Shares of the Minneapolis company fell $10.74, or 28.6 percent, to close at $26.83 after sinking more than 30 percent earlier.
Business, Pages 32 on 01/17/2014