Best Buy Drops as Spending Plan, Sales Slide Hurt Forecast

(Bloomberg) -- Best Buy Co. is entering a new phase of its turnaround plan, but some old doubts remain.

The retailer's stock tumbled on Tuesday after the company forecast first-quarter profit that trailed analysts' estimates. Best Buy attributed the gloomy outlook to a shrinking consumer-electronics industry, which hampered sales during the critical holiday shopping period, and said investments in a new initiative to reignite growth may also weigh on results.

Chief Executive Officer Hubert Joly has been lauded for cutting costs and revamping stores -- part of plan he dubbed Renew Blue -- though consistent, robust sales growth has remained elusive. Best Buy is now moving to a new stage of its turnaround, called Building the New Blue, which will focus on expanding its online business, providing customers with services, and accelerating growth in Canada and Mexico. The current year is the first step in that undertaking and will require investing in people and systems, Joly said.

Profit will be 35 cents to 40 cents a share, excluding some items, in the quarter through April, the Richfield, Minnesota-based company said Wednesday. Analysts estimated 49 cents, on average.

Best Buy's shares fell as much as 5.5 percent to $41.72 in New York, the biggest intraday decline since Nov. 11. The stock had gained 3.4 percent this year through Tuesday.

The new plan follows a fourth-quarter that featured better-than-expected earnings, but weaker sales. Profit in the period through Jan. 28 was $1.95 a share, excluding some items, beating analysts' $1.67 average estimate. Yet revenue slipped 1 percent to $13.5 billion, missing projections for $13.6 billion.

Same-Store Sales

Same-store sales -- a key metric for investors -- fell 0.7 percent, marking the fourth time in the past five years that the measure has dropped during the crucial fourth quarter.

Best Buy has been plagued by a weak U.S. consumer-electronics market over the past few years, with demand for smartphones and tablets leveling off. Ultra-high-definition televisions provided a boost when they debuted in 2014, but falling prices have reduced their impact. Drones, connected-home devices, activity trackers and virtual reality have been seen potential new hot products, but they haven't reached widespread adoption.

The company is largely measured by the last two months of the year, with the fourth quarter accounting for about a third of its sales. The period is also when competition is the strongest, as discounters Wal-Mart Stores Inc. and Target Corp. aggressively court electronics buyers with heavy promotions.

Best Buy said that last quarter's revenue also was hurt by weaker video-game demand and “unprecedented product-availability constraints” from multiple suppliers and in multiple product categories. A dearth of phones, tablets, wearables, computing products and drones reduced sales by more than $100 million during the quarter, Joly said. That was in addition to a $200 million sales hit from Samsung Electronics Co.'s recall of its Note 7. Fourth-quarter comparable sales would have risen without the recall and product-availability issues, the company said.

Best Buy also has reduced disclosure about its holiday sales for investors. For years, the company reported the combined sales results for November and December. But after results showed another lackluster Christmas in 2015, which sent the stock down the most in a year, the company decided to end the practice. It now only announces the results for the full quarter, which includes January. Best Buy says the old two-month approach is less needed because consumers do more of their shopping in January.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net.

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Kevin Orland