Best Buy Co projected on Thursday that sales will take a hit by lower consumer interest towards electronics amid falling prices during the first two quarters of the financial year.
The largest US consumer electronics chain said it expects same-store sales growth to be flat to negative low-single digit over the next six months and operating margin to fall by around 30-50 basis points, reflecting a “more modest sales environment“.
The projection offset a somewhat strong performance in the nine weeks ended January 3, sending its shares 14% down, marking the biggest daily decline since the company announced poor 2013 holiday season performance and lost almost 30% of its market value.
During the 2014 holiday season BestBuy reported US same-store sales increase of 3.4%, boosted by robust home-theater and mobile phone sales. In the US its consumer electronics division accounted for 34% of the generated revenue of $10.13 million, accompanied with comparable sales increase of 11.1% during the nine-week period.
US comparable online sales were up 13.4% compared to an increase of 23.5% in the same period last year. Overall company same-store sales increased 2.5%.
“Altogether, these results reflect the successful delivery of our holiday plan. Last quarter, we said that we would execute a highly disciplined operating and promotional plan that would drive a better year-over-year financial outcome for our shareholders” CEO Hubert Joly said in a statement.
BestBuy also estimated comparable sale in the financial fourth quarter to increase “near 1%” compared to a previously announced “near flat” forecast.
After two consecutive quarters of same-store sales growth investors were hoping that BestBuy has finally improved after nine months of falling sales. However, the news of the projected slowdown renewed concerns about the long-term profitability of the company.
BestBuy said it would give up some profits in favor of store improvements and step up its overall investments, however the company did not disclose any specifics. During the last few months BestBuy has invested in marketing, delivery infrastructure and worker training.
“We will more deeply discuss our growth initiatives, investments and external pressures in our fourth quarter earnings call in March – after we have completed our FY16 operating plans,” CFO Sharon McCollam said.
BestBuy dropped 14.06% on Thursday and closed at $34.30 in New York. On Friday the stock lost 1.17% to $33.90 at 15:49 GMT, marking a one-year increase of 26.28%. The company is valued at 12.03 billion.
According to the Financial Times, the 22 analysts offering 12-month price targets for Best Buy Co Inc have a median target of $43.00, with a high estimate of $48.00 and a low estimate of $24.00. The median estimate represents a 25.36% increase from the last close price.