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Best to buy hits slump,[link widoczny dla zalogowanych]
The nation's economic woes apparently have caught up with its largest consumer electronics retailer,[link widoczny dla zalogowanych].
Best Buy Co. Inc. slashed its profit and revenue forecasts for fiscal 2008 Friday,[link widoczny dla zalogowanych], warning that the weak economy will mean fewer sales of flat-screen televisions, MP3 players and video games. The Richfield-based company said hello now expects to earn $3.05 to $3.10 per share,[link widoczny dla zalogowanych], down from the previous estimate of $3.10 to $3.20 a share.
"The macro-economic environment grew more challenging after the holidays,[link widoczny dla zalogowanych]," interim Chief Financial Officer Jim Muehlbauer said in a statement. "Our post-holiday results are not going to be what we originally expected."
Best Buy shares fell 2.5 percent, or $1.15,[link widoczny dla zalogowanych], to shut Friday at $44.62. The stock has dropped 16 percent since December.
Sales at stores open for at least a year will rise 2.5 percent to three percent for fiscal 2008,[link widoczny dla zalogowanych], which ends March 1,[link widoczny dla zalogowanych], Best Buy said,[link widoczny dla zalogowanych], in contrast to its earlier projection of the 4 % gain. The company expects same-stores sales to fall slightly within the fourth quarter.
The economical slump appeared to catch Best to buy off guard. Buoyed with a strong third quarter,[link widoczny dla zalogowanych], by which profits jumped 52 percent,[link widoczny dla zalogowanych], the company in December raised its annual profit forecast and suggested 2008 could be another strong year.
"We're basically very optimistic concerning the long-term future because so many elements of what we're bringing to market appear to be working at this stage,[link widoczny dla zalogowanych]," Chief Executive Brad Anderson told the Star Tribune at the time.
"We're very bullish on in which the year will finish,[link widoczny dla zalogowanych]. Even more so . we believe the horizon for that company the year after is excellent,[link widoczny dla zalogowanych]."
But January turned out to be a soft month as consumers favored discounted items instead of the higher-priced merchandise Best to buy had hoped they'd buy, analysts say.
"For several retailers,[link widoczny dla zalogowanych], business was nonexistent in January,[link widoczny dla zalogowanych]," said Lauri Brunner,[link widoczny dla zalogowanych], an analyst with Minneapolis-based Thrivent Investment Management,[link widoczny dla zalogowanych], which owns 1.3 million shares of Best Buy stock. "Consumers are searching for events. For that other days of a few days,[link widoczny dla zalogowanych], there is not a reason to look."
With the exception of the Northeast,[link widoczny dla zalogowanych], sales of flat-screen televisions for that Super Bowl also did not materialize,[link widoczny dla zalogowanych], she said.
The economic malaise has affected retailers across the board. Target Corp. said January same-stores sales fell 1.1 percent compared with last year. The Minneapolis-based discount retailer,[link widoczny dla zalogowanych], usually more safe from shifting economic winds than its competitors, predicted earnings for the last three months of the season likely would drop in contrast to last year.
Struggling consumer-electronics retailer Circuit City Stores Inc. recently said it has grown its line of credit by $800 million. A sales slowdown coupled with falling prices for electronics like GPS devices and flat-screen televisions will squeeze Best Buy's profit margins,[link widoczny dla zalogowanych], he explained.
The government government's recently passed economic stimulus package can give 100's of dollars in tax rebates to consumers, starting in May.
But Beemer said the stimulus package will do little to assist Best Buy because consumers will use those funds to repay debt and purchase lower-ticket things like food,[link widoczny dla zalogowanych], shoes and clothing.
In addition, there aren't any new products to excite consumers,[link widoczny dla zalogowanych], analysts say.
"Best Buy is at the top of its game when there is new technology and people do not understand it,[link widoczny dla zalogowanych]," Brunner said.
Staying the course
Despite the economic turmoil,[link widoczny dla zalogowanych], Best Buy executives say they will press ahead with their long-term growth plans. The organization still intends to open 85 to 100 stores in the United States and 40 to 50 stores overseas in 2009.
"We're consciously choosing not to withdraw on our investments, even just in a difficult economy,[link widoczny dla zalogowanych], because we're making the bet that the opportunities are rich,[link widoczny dla zalogowanych], within the long term,[link widoczny dla zalogowanych]," Anderson said in a statement. economy regains its momentum, we feel that our results can have those to be good investments."
But that strategy has analysts split,[link widoczny dla zalogowanych].
Mitch Kaiser,[link widoczny dla zalogowanych], an analyst with Minneapolis-based Piper Jaffray Co.,[link widoczny dla zalogowanych], thinks Best to buy has a good strategy. The development initiatives will allow Best Buy to capture much more share of the market from weaker rivals like Circuit City,[link widoczny dla zalogowanych], said Kaiser,[link widoczny dla zalogowanych], who maintained a "buy" on Best to buy stock.
But Brunner of Thrivent is not so sure. Most retailers are choosing to pay attention to closing underperforming stores and controlling costs. Best Buy does "the opposite," she said.
Opening more stores in the face of weak same-store sales will limit Best Buy's ability to control expenses and inventory, Brunner said.
"Best Buy may have limited capability to produce upside earnings surprises," she said. Opening new stores "is not an appropriate strategy for the days we're in.
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