Best Buy Co Inc on Tuesday reported quarterly earnings that missed analysts' estimates by 28 percent and gave a disappointing full-year forecast as lower-margin products like notebook computers and video game consoles made up a greater percentage of sales.
The outlook sent shares of the top US consumer electronics retailer down nearly 6 percent. It also cast new doubts on US consumer spending trends, weighing on US stocks. "The margin numbers were terrible and we've known from the data we've seen that consumer spending has moderated," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.
Best Buy, whose rivals include Circuit City Stores and Tweeter Home Entertainment Group as well as Wal-Mart Stores Inc, reported net income of $192 million, or 39 cents a share, for the first quarter that ended June 2, down from $234 million, or 47 cents per share, a year earlier.
Analysts on average were expecting profit of 50 cents per share, according to Reuters Estimates. This was Best Buy's second earnings miss in the past three quarters, and by far the widest in terms of percentage in nearly three years.
Revenue rose to $7.93 billion from $6.96 billion, beating analysts' targets of $7.83 billion. The Minneapolis-based company said the revenue increase reflected the net addition of 230 new stores in the past 12 months and a comparable-store sales gain of 3 percent from a year ago.
The average size of customer transactions also increased as the chain has seen a shift toward higher-ticket items. But Sanford Bernstein analyst Colin McGranahan said gross margin fell by 150 basis points, far worse than his forecast of a 106-basis-point decline.
"Growth clearly came at the expense of margin as promotional TV sales and less-profitable notebook and gaming hardware categories pressured margins," McGranahan said in a note.
Best Buy said it expected consumer spending to be difficult to predict this year, with flat-panel televisions and portable computers staying strong. But it sees sales in lower-margin categories accelerating.
Best Buy forecast fiscal-year earnings of $2.95 to $3.15 per share, short of the analysts' average view of $3.16, according to Reuters Estimates. The company's stock was down $2.28, or 4.8 percent, at $45.73 in morning New York Stock Exchange trade after falling as low as $45.42.
The stock is down about 7 percent for the year and has generally hovered between $45 and $50 during that time. Over the same period, the Standard & Poor's 500 has risen about 8 percent. Circuit City shares tracked Best Buy lower, dropping 2.6 percent. Circuit City is scheduled to report early on Wednesday.
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