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Best Buy Holiday Sales Decline

16 Jan, 2014 By: Erik Gruenwedel

CE retailer’s stock plummets as much as 30% in pre-market trading following results

Best Buy Jan. 16 said winter holiday sales in the U.S. slipped 1.5% to $9.7 billion during the nine-week period ended Jan. 4. Same-store sales (open at least 14 months) dipped 0.9% after analysts had projected a gain of 0.7%.

Notably, same-store consumer electronics sales dropped 6%, while in entertainment, which includes music CDs, movie discs, digital imaging and MP3 players, sales declined 6.6%. Computing and mobile phones sales increased 3.2%, which Best Buy characterized as “disappointing” given the marketing push during the holidays.

Online sales increased 23.5% compared with 10% during the previous-year holiday period.

Meanwhile, the Minneapolis-based CE retailer said margins were negatively affected due to the extended promotions, store hours, discounting and price matching that began on Thanksgiving evening (before Black Friday).

CEO Hubert Joly, in a statement, said he expects fourth quarter operating margins to take a hit (175 to 185 basis points) as a result. A basis point is considered equivalent to one hundredth of percentage point.

“When we entered the holiday season, we said that price competitiveness was table stakes, and an intensely promotional holiday season is what unfolded,” Joly said. “In both channels, the promotional intensity that began with Black Friday continued throughout the period, which led us and our competitors to answer one question — do we make the incremental investment necessary to be price competitive and defend our market share? For us, there was only one answer.”

In a call with analysts, Joly indicated Best Buy would return to focusing on service and in-store expertise as a means of better competing against online competitors such as Amazon and Walmart.

Best Buy in November warned that heavy promotions and discounting could impact fourth quarter margins. Southeast retailer H.H. Gregg Jan. 7 estimated that store sales decreased approximately 11.2%, with the appliance category expected to have increased approximately 1.5%, the consumer electronics category decreased about 19.7%, the computing and wireless category decreased approximately 24.5%, and the home products category expected increased about 36.1%

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