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Best Buy Warns Q4 Margins Could Suffer as Holiday Promotions Ramp Up

19 Nov, 2013 By: Erik Gruenwedel

No. 1 CE retailer posts $54 Million third-quarter profit

Locked in a multi-front Christmas retail battle with Walmart, Target and ecommerce, Best Buy Nov. 19 warned analysts its fourth-quarter margins would likely suffer as a result.

The news put a slight damper on third-quarter (ended Nov. 2) results, which included net income of $54 million — a strong turnaround from a $10 million net loss during the previous-year period.

"If our competition is in fact more promotional in the fourth quarter, we will be too, and that will have a negative impact on our gross margin," Best Buy CFO Sharon McCollam said on the fiscal call.

Indeed, Best Buy is offering up to 6% in “rewards” value to consumer using a Best Buy credit card, a newly launched ship-from-store capability, now active in more than 400 stores, and free shipping to any online orders over $25.

The news comes as Walmart annouced it would begin matching Black Friday pricing from Target, Best Buy and others starting this week.

"We believe that price competitiveness is table stakes," Best Buy CEO Hubert Joly said.

Meanwhile, domestic same-store sales inched up 1.7% in Q3, with operating income ballooning to $111 million from $16 million last year. Revenue grew a scant 2% to $7.8 billion.

Finally, comparable store entertainment sales plummeted nearly 27%, representing 6% of domestic revenue — down 3% from last year. Best Buy continues to transition to digital sales of entertainment, including offering early retail releases of major studio movies on CinemaNow.com with UltraViolet functionality.

Regardless, Russ Crupnick, SVP of industry analysis with The NPD Group, says he would be surprised if Best Buy doesn’t roll out endcaps selling new release packaged media for the holidays. NPD estimates the number of physical video-disc buyers in the U.S. at over 50 million.

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