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Best Buy Misses Q3 Target

13 Dec, 2005 By: Holly J. Wagner

Investors drained $5 per share, almost 11 percent, from Best Buy's stock price today after the chain reported it had missed its estimates for the third quarter ended Nov. 30, and an analyst downgraded the stock.

The share price dropped from Monday's close of $49.84 to $44.39 in early trading Tuesday as Credit Suisse First Boston downgraded the company from “outperform” to “neutral.”

Executives cited weakness in entertainment software ahead of new game and DVD platform launches and higher labor costs as the culprits in missing estimates by 2 cents a share. And while the launch of Xbox 360 was a comp driver, “that hardware doesn't come with much margin, so consequently give it up in that part of the house,” an executive said.

The chain saw sales declines in tube and projection televisions, video gaming and movies, but held up with comp-store sales gains in flat-panel televisions, MP3 players and accessories, and notebook computers.

Entertainment software comprised 17 percent of third quarter revenue, but comp-store sales declined 12.2 percent. The chain reported strong customer response to the launch of the Xbox 360 console but it was not enough to make up for softness in sales of older platforms leading up to the new product launch. Comp sales for gaming slid in the low-double digits. The weak movie and music release slates also led to a 6.7 percent decline in comps for entertainment software.

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