Slower growth in smartphones dampens Best Buy’s holiday; stock falls sharply

  • By Kavita Kumar Star Tribune
  • Thursday, January 14, 2016 12:54pm
  • Business

MINNEAPOLIS – Best Buy said Thursday that softness in mobile phones slowed its holiday sales, which were lower than expected and sent its stock plunging more than 10 percent.

The Minneapolis-area retailer reported a 1.4 percent drop in U.S. same-store sales during the nine-week holiday sales period Jan. 2. It lowered sales guidance for its entire fiscal fourth quarter, which runs through this month.

In the first hour of trading, Best Buy’s shares were down about 12 percent.

Chief executive Hubert Joly noted that sales of consumer electronics, as measured by a market researcher, dropped industrywide by nearly 5 percent. He said wearable fitness trackers, TVs and appliances showed strength in the quarter.

The company and industry were up against a difficult comparison. A year ago, Apple Inc.’s bigger-sized iPhone 6 products drove big gains across the industry. The revision of the iPhone 6 that went on sale last September didn’t create the same jolt.

“There was not a newness factor in the iPhone,” Joly told reporters on a conference call Thursday morning. “The iPhone 6s was merely an incremental change from the iPhone 6.”

And he added that without a lot of new upgrades in phones, there wasn’t as much of a need for consumers to buy new accessories such as smartphone cases.

Excluding smartphones, Best Buy’s comparable sales and overall revenue grew in the U.S. Best Buy found a sweet spot in 4K TVs, which is a product cycle more in its prime, Joly said. “We sold one out of every two 4K TVs,” he said.

While adjusting its sales outlook downward, Best Buy did raise its profit forecast for the November-to-January quarter, citing increased expense controls and a more disciplined promotional strategy.

Best Buy had forecast flat sales during the holidays in a nod to industry projections that sales of consumer electronics would likely decline during that period. Still, Best Buy executives said they expected to gain market share and to outperform the industry.

One cost center that emerged for the company came from an aggressive stance on shipping for the holidays. Like Minneapolis-based Target and other retailers, Best Buy offered free shipping for online orders no matter their value. The company usually requires orders to be at least $35 in order to qualify for free shipping.

Best Buy’s annual January announcement about holiday sales has led to big stock sell-offs, even when the results were fairly good. A sell-off came with the holiday sales report in January 2014, following a year in which Best Buy’s stock tripled in value, and one happened with the holiday numbers last year, following a year in which it doubled.

Thursday’s sell-off follows a year in which Best Buy’s stock lost about a quarter of its value.

Other retailers have reported mixed holiday results. Many of those who have reported sales declines, including Macy’s and Gap Inc., have pointed to the unusually warm temperatures in many parts of the country during November and December as a major culprit as shoppers were not as interested in buying items such as sweaters and scarves.

During the holiday period in 2014, Best Buy reported that sales at U.S. stores rose 2.6 percent, beating a forecast for flat sales that quarter.

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