Best Buy Dives on Rival’s Warning

Home electronics giant Best Buy Co. Inc. (NYSE: BBY) has seen its shares plunge today following an earnings warning from much smaller rival hhgregg, Inc. (NYSE: HGG). The Indianapolis-based retailer, which operates 210 stores 16 states cut its fiscal 2013 EPS forecast from $1.12-$1.27 to a new range of $0.90-$1.05. Analysts had a consensus EPS estimate of $1.20.

For the current quarter, hhgregg expects to post a net EPS loss of -$0.16 to -$0.17 versus analysts’ consensus estimate for a loss of -$0.04. The company actually raised its revenue estimate, but even the raise left expected revenues well below the consensus estimate of $509.2 million. The company’s CEO and president said that the weak forecast for the quarter is “an indicator of the difficulty in the current retail environment, and more specifically the embedded volatility in the video industry.”

Best Buy, which recently announced 2,400 layoffs, is also testing a new strategy for its big box stores that would re-make the retail operation more like the stores operated by Apple Inc. (NASDAQ: AAPL). Like hhgregg, Best Buy has seen sales of big screen TVs melt away as customers are more interested in mobile devices like tablets, e-readers, and smartphones.

The problem for hhgregg and Best Buy is that shoppers come to the stores to kick the tires on various products, but tend to make purchases from online outlets like Amazon.com Inc. (NASDAQ: AMZN) where prices are typically lower. And both Best Buy and hhgregg are trying to differentiate themselves by offering a larger selection of appliances, like stoves and refrigerators.

With consumer electronics products available at retailers as varied as Wal-Mart Stores Inc. (NYSE: WMT), RadioShack Corp. (NYSE: RSH), and the locally-owned small business, as well as through any number of online outlets, the list of reasons for either Best Buy or hhgregg to exist gets shorter every day.

Shares of hhgregg are down -38% in mid-afternoon trading today at $7.16 after posting a new 52-week low of $7.00 earlier today. The previous range was $8.88-$16.65.

Best Buy’s share are off nearly -7.5% at $19.57 in a 52-week range of $17.53-$31.56.

Paul Ausick