The party looks to have come to an abrupt end for Best Buy
Best Buy was still able to post nearly 14% sales growth as same-store sales improved a respectable 3%. But the bottom line fell 18%, well below the 6% gain that analysts were expecting. CEO Brad Anderson explained, "Strong revenue results from lower-margin products significantly cut into our gross profit rate."
The quarterly press release also cited last June's acquisition of its China-based business as cutting into profits as it "carries a significantly lower gross profit rate." Here at home, sales of lower-margin laptop computers and video game hardware from the likes of Sony
More positively, the company stated online that sales are doing well and that consumers are spending more by purchasing big-ticket items such as flat-panel televisions. Best Buy also recently started selling more Maytag appliances after the company was acquired by Whirlpool
But overall, the sales mix is shifting toward the lower end, causing management to reduce full-year guidance to $2.95-$3.15, down from $3.10-$3.25 previously. The market clearly didn't like the negative news -- the stock is down over 5% today.
Electronics retailing is an inherently tough industry, with razor-thin margins and hit-or-miss product cycles where merchandise can be found almost everywhere, be it Best Buy, Circuit City
For related Foolishness:
Fool contributor Ryan Fuhrmann is long shares of Microsoft but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.