What happened?
Best Buy (BBY +0.40%) released disappointing Christmas sales numbers on Thursday, and blamed "significant declines" in mobile phones, tablets, and digital imaging devices for the shortfall. It updated its fourth quarter guidance to reflect its expectation that revenues would now drop 1.5% compared to its previous forecasts of sales being flat.
Does it matter?
Although the market pummeled Best Buy's stock, sending it down by 10% after the release, investors shouldn't have been surprised, as the electronics superstore warned in November that the holidays weren't going to be very merry. It told analysts on its third-quarter earnings call that it was up against tough comparable sales numbers from 2014. Industry observers were already seeing widespread weakness at the time.
There have been few major product upgrades and innovations introduced -- Apple's iPhone 6s was only a tweak to the iPhone 6 already on the market -- and Wal-Mart said at the time "technology relies on a lot of innovation to kick-start sales." Hhgregg's CEO had said there wasn't much happening in TV's either.
That's since been confirmed by market researchers at IDC, which reported PC shipments plunged 10.6% in the fourth quarter from the year-ago period (IDC says Apple bucked the trend with shipments rising 2.8%). Tablets are also facing pressure from big-screen mobile phones, but even cell phone growth slowed from 27.5% in 2014 to just 10% last year.
While Best Buy executives had anticipated the soft market, the severity of the decline in mobile phones was surprising and ended up more than offsetting the gains it made in wearable tech, home theaters, and appliances. The growth it enjoyed there showed it likely gained market share in those categories, but with the mobile business being the mainstay of its operations it's left looking for a rebound in 2016.
That may not be quick in coming. Investment firm Piper Jaffrey lowered its forecast of iPhone 6s sales for the first quarter last week saying suppliers have confirmed component orders are down 10% to 15%, while Samsung gave a cautious outlook for its performance as it faces competitive pressure across all its product lines. This could be the year where even product upgrades do not substantially lift earnings equally for everyone.
