Best Buy’s Stock Plummets On Weak Holiday Sales

Best Buy’s Stock Plummets On Weak Holiday Sales

On the news of unexpectedly poor holiday sales, Best Buy’s stock fell nearly 30 percent Thursday and its CEO announced that the company would need to cut costs.

Best Buy’s stock tanked almost 30 percent Thursday morning after the company announced that its U.S. holiday sales were weaker than last year due to a combination of low prices and low in-store traffic.

The Richfield-based electronics retailer saw its same-store sales, which exclude newly opened locations, fall by 0.9 percent, contradicting Wall Street expectations that it would increase slightly.

President and CEO Hubert Joly attributed the holiday revenue decline to four factors: aggressive price cuts due to competition, which he said did not end up increasing industry demand; supply constraints for key products; significant store traffic declines over the holidays; and a disappointing mobile phone market.

“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 a statement. “This investment in pricing did come with a higher-than-expected cost,” and the company now expects its fourth-quarter operating income rate to be lower than last year.

The company’s stock fell dramatically Thursday morning to $25.80 per share, down from $37.60 at the end of trading Wednesday. It inched up slightly by Thursday afternoon, however, to $27.20.

Best Buy’s stock was one of the great turnaround stories of 2013 after it climbed 87 percent in the first three months of the year, digging itself out of the huge hole it found itself in at the end of 2012. The stock continued to climb throughout last year as analysts nearly across the board predicted growth.

Some analysts, however, are now acknowledging that they may have painted too rosy an outlook for the company’s holiday season. “We were wrong on holiday at [Best Buy],” Philadelphia-based Janney analyst David Strasser told the Wall Street Journal. “There were two things that mattered—one was [comparable sales] and the other was gross margin. [Best Buy] missed on both. It just seems that the promotions didn’t drive incremental sales.”

“This lack of holiday follow-through is likely to re-stoke fears of permanent operating margin pressures to the business,” St. Louis-based Stifel analyst David Schick told the WSJ. “Our biggest concern stems from our belief [that its fourth quarter] had to go well to continue the virtuous cycle of vendors re-investing in the consumer-electronics specialty model.”

On the positive side, Best Buy’s online same-store sales over the holiday season increased by 23.5 percent, up from 10 percent growth the year before. However, during a conference call Thursday morning, Joly admitted that Amazon was still able to outperform Best Buy by delivering products at the last minute before Christmas.

Looking forward, Joly said the company’s priorities are to cut more costs, grow its online market faster, increase the personalization of its marketing approach, and expand its “Geek Squad” services business.

Although Joly didn’t specify what methods the company plans to use to lower costs, reducing expenses involved cutting 400 jobs from the company’s Richfield headquarters last year.

The news of the poor holiday sales prompted Best Buy’s founder Richard Schulze, who left the company in 2012 following a scandal involving its former CEO but returned as “chairman emeritus” in March, to release a statement of reassurance Thursday.

“Best Buy is on this journey and in this business to win, acquire, and retain new and existing customers,” Schulze said. “I have complete faith in the long-term strategy and I am confident that management is taking the steps required to win and position the company for a successful future.”

Best Buy’s total revenue during the holiday sales period, which ended January 4, was $11.5 billion, down from $11.8 billion in 2013.

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