Best Buy Cuts Outlook
Wednesday December 17, 5:40 pm ET
By Ellis Mnyandu
NEW YORK (Reuters) - Best Buy Co. Inc. the top U.S. electronics retailer, on Wednesday forecast fourth-quarter profit to miss Wall Street's estimates and rival Circuit City Stores Inc. reported a wider-than-expected quarterly loss in the latest signs of a slack holiday shopping season.
But shares of Minneapolis-based Best Buy (NYSE:BBY - News) gained nearly 4 percent on hopes that the chain could still handily meet or even beat its lowered expectations as it continues to win customers, mainly from struggling rival Circuit City (NYSE:CC - News).
Best Buy Chief Executive Brad Anderson said his chain was also gaining business from mass retailers.
"Looking at a lot of our internal measurements, like customer loyalty scores, customer engagement scores, they are all up and the economy looks good compared with this time last year," Anderson told Reuters in an interview.
Stacey Widlitz, an SG Cowen Securities Inc. analyst, said any bad news was already built into the price of Best Buy's stock, hence the jump even after a gloomy forecast.
She noted that although snowstorms in the Northeast may have weighed on Best Buy so far in the fourth quarter, sales in markets outside the region remained on plan.
Colin McGranahan, an analyst at Bernstein, said there was still "an upside possibility for an even stronger finish to the holiday season" as shoppers begin spending highly popular gift cards through January and February. Such cards are not immediately counted as revenue until redeemed for merchandise.
Shares of Circuit City, meanwhile, tumbled by almost 7 percent on concern that it lost more market share even with promotions and a costly store revamp. Analysts also said a move to hire some 12,000, mostly part-time staff for the holidays, also hurt the chain as many lacked sales experience.
Best Buy's profit in the quarter ended Nov. 29 was $122 million, or 37 cents a share, in line with Wall Street lowered average view, compared with $86 million, or 27 cents a share, a year ago. Including a loss on discontinued operations of $27 million, Best Buy in the year-ago third quarter had net earnings of $59 million, or 18 cents a share.
Best Buy said it expects fourth-quarter profit to range from $1.34 to $1.39 a share. Analysts' average view was $1.41, according to Reuters Research, a unit of Reuters Group Plc.
COMPETITION GETS STIFFER
Chief Financial Officer Darren Jackson said Best Buy expected same-store sales -- sales at stores open at least 14 months -- to increase by 6 percent to 8 percent for the current quarter, bringing total revenue for the fourth quarter to about $8.3 billion. Third-quarter sales were $6.03 billion.
Best Buy and Circuit City face growing competition from industry newcomers, such as computer makers Gateway Inc. (NYSE:GTW - News) and Dell Inc. (NasdaqNM:DELL - News).
Moreover, discounters like Wal-Mart are also slashing prices on such popular items as digital cameras, camcorders, DVD players, home theater systems and big-screen TVs.
Circuit City Stores narrowed its loss in the third quarter ended Nov. 30 from a year ago, but higher advertising expenses and weak sales weighed on overall results. The company has stepped up advertising during the busiest shopping seasons, leading some analysts to worry about more discounts if this year's sales remain tepid.
Richmond, Virginia-based Circuit City's loss was $24.1 million, or 12 cents a share, compared with a loss of $26.1 million, or 13 cents a share, a year ago. Analysts expected, on average, a loss of 7 cents a share, according to Reuters Research.
Circuit City said sales fell by 1 percent to $2.41 billion. Shares of Best Buy, which hit an all-time high of $62.59 on Dec. 1, ended up $1.98 at $51.50. Circuit City slid 74 cents, or 6.68 percent, to close at $10.34. |
