Best Buy Falters: Is Wal-Mart At Fault?

Electronics retailer Best Buy Co., Inc. (NYSE: BBY) posted a major miss on earnings this morning and the company’s share price is getting a beating. The company reported third quarter EPS of $0.54, a clear miss against estimates of $0.61. Revenue totaled $11.89 billion, again a clear miss compared with estimates of $12.47 billion.

What is not clear yet is whether Best Buy is a good proxy for consumer electronics sales leading into the holidays or whether larger retailers like Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) used discounts to gain market share. Amazon.com (NASDAQ: AMZN) is another possible suspect

Competitors GameStop Corp. (NYSE: GME) and RadioShack Corp. (NYSE: RSH) are also getting clipped a bit in pre-market trading.
Best Buy’s US same-store sales were off -5% as a result of “lower industry demand in key categories and changes in market share.” Worldwide, same-store sales were off -3.3%.
Sales were down by low-double digits for TVs and entertainment hardware and software. TVs also suffered a mid-single digit price decline. Mobile phone sales picked up some of the slack, rising by a low-double digits as a result of improved smartphone sales and a mid-single digit increase in mobile computing sales, primarily from tablets.

Perhaps worse, the company reported a market-share decline of -1.1% compared with the same period last year. Best Buy noted that based on year-to-date trends, it “now estimates that its domestic market share will decline for the full fiscal year as compared to the prior fiscal year.” That is not music to investors’ ears.

The loss of market share led the company to forecast that its full fiscal year 2011 earnings would be lower than previous guidance. Best Buy now expects full-year EPS of $3.20-$3.40, compared with analysts’ estimates of $3.59. Best Buy noted that its new earnings estimate included an approximate $0.12 favorable impact related to the store’s stock buybacks thus far in the fiscal year. That makes the earnings forecast look even worse.

The company got little comfort from the US Commerce Department report this morning that retail sales had increased by 0.8% in November, better than an expected increase of 0.5%. October sales figures were also revised upward, from an estimated 1.2% increase to a 1.7% increase. The Commerce Department noted that sales at electronics and appliance stores were off -0.6%.
Best Buy shares are down more than -13% in pre-market trading.

Paul Ausick