Best Buy Falls as Hurricanes, Delayed IPhone Hinder Growth

(Bloomberg) -- Best Buy Co.’s latest results are raising fresh doubts about its turnaround.

The world’s largest electronics chain posted third-quarter comparable sales that missed analysts’ estimates, as major hurricanes in Texas, Florida and Puerto Rico and earthquakes in Mexico trimmed revenue during the period. The retailer also said a later release date this year for Apple Inc.’s iPhone affected its performance. The stock fell as much as 7.6 percent on Thursday, the most in almost two months.

The results signal that the company’s investments in customer satisfaction and staff may not be paying off fast enough in its battle with Amazon.com Inc. Chief Executive Officer Hubert Joly arrived in 2012 from running hotel chains with a plan to cut costs while beefing up online operations and in-store experience. While he’s revived growth, five years on, investors want more. In September, he laid out a plan to boost revenue to $43 billion by 2020, but the stock still sold off.

The pressure is only going to increase as Best Buy heads into the holiday season, Moody’s Corp. analyst Charlie O’Shea said in a note.

“The key for Best Buy to maximize its profitability,” he said. “Wal-Mart and Amazon continue their heavyweight battle for market share across many categories, with consumer electronics a key battleground.”

Best Buy shares fell to as low as $52.92. The stock had gained 34 percent this year through Wednesday’s close.

The iPhone’s November release pushed all the benefits into the current quarter and reduced sales in the previous period by more than $100 million, the company said. Revenue totaled $9.32 billion. With that added revenue, Best Buy would have surpassed analysts’ estimates of $9.36 billion.

Same-store sales, a key investor metric that also includes web purchases, rose 4.4 percent. Analysts expected 4.8 percent, according to Consensus Metrix. Natural disasters in August and September reduced this measure by as much as 20 percentage points, the company said.

Adjusted Profit

Excluding some items, profit of 78 cents a share met estimates, breaking a streak of 19 straight quarters in which it had exceeded expectations. The company also raised the top-end of its annual sales forecast to a gain of 4 percent to 4.8 percent. It had projected revenue would increase 4 percent.

Changing Dynamic

The sales forecast includes same-store sales growth of 1 percent to 3 percent in the fourth quarter, which was below what some analysts had expected. That, coupled with the third-quarter results “are a bit of a change following several big earnings beats,” could weigh on the stock for the next few quarters, Scot Ciccarelli, an analyst for RBC Capital Markets, said in a note.

As Best Buy heads into the core holiday-shopping season, it hasn’t so far seen a big uptick in discounting by competitors from a year ago, the company said. That could bode well for a chain that tries to maintain profit margins during Christmas, even if it means less sales.

“Looking ahead, we are very excited about our plans for holiday,” Joly said in a statement. “We believe we are well positioned for a successful season and therefore, we are raising our financial outlook for the fourth quarter and for the year.” 

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, Jonathan Roeder

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