When Best Buy Co. Inc. (NYSE: BBY) reported third-quarter results last week, the electronics gear retailer beat profit estimates and narrowly missed on expected revenues. Shares opened down about 6.7%, but that was the effect of a weak outlook statement on the fourth quarter.
Best Buy expects revenue to decline in the low single-digit range in the fourth quarter, with profit margins taking a hit of 25 to 45 basis points across the enterprise. That’s not so good but is in line with industry research firm NPD Group’s forecast for a decline of 4% in sales of electronics gear.
To combat the expected softness in the market for phones, video game controllers, and other electronics gear, Best Buy is kicking off its Black Friday sales early with featured pricing on a variety of Apple (NASDAQ: AAPL) products and HD TVs from Samsung, Sharp, and LG Electronics.
Most Best Buy stores will open at 5 p.m. on Thanksgiving Day and Black Friday deals are available all day for online shoppers. For example, an Apple iPad Air 2 with 16GB of memory sells today for $499 but will be available for $100 less on Black Friday. Samsung’s Galaxy S6 with 32GB will sell for $1.00 with a two-year contract from a number of wireless carriers, a savings of 99% from the regular price of $200.
Weak sales for phones, game controllers, and tablets in the third quarter are the likely drivers behind Best Buy’s special pricing. If it had not been for the better sales of appliances and big-screen TVs, the company’s third-quarter results might have been worse.
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But to sell these consumer electronics products at such low prices hacks away at margins and drives promotional costs up because every retailer is likely to be offering deals with similar or slightly better pricing. Winning in that kind of environment is difficult to do.
Best Buy’s shares closed down about 0.5% on Friday at $30.51 in a 52-week range of $28.32 to $42.00. The consensus price target on the stock is $39.22 and the high target is $50.00.
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