Best Buy's Quarterly Profit Squeezed by Discounts

By IBTimes Staff Reporter | December 13 2011 9:14 AM

Best Buy Co's quarterly profit missed Wall Street estimates as bigger discounts during the holiday season squeezed margins at the world's largest electronics chain, and its shares fell 9 percent in premarket trading on Tuesday.

Reuters

To woo budget-conscious shoppers from rivals, Best Buy offered deep discounts on items and promised to match any lower prices its brick-and-mortar rivals advertised during the peak of the holiday season. It also offered free shipping.

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In its third holiday shopping season after the bankruptcy of archrival Circuit City, Best Buy faces cut-throat competition from online retailer Amazon.com Inc and discounters such as Wal-Mart Stores Inc and Target Corp .

To woo budget-conscious shoppers from mass merchants and online rivals, Best Buy offered deep discounts on items such as flat-screen TVs, promised to match any lower prices its brick-and-mortar rivals advertised during the peak of the holiday season and even offered free shipping.

The decisions helped the industry bellwether to report a 0.3 percent rise in sales at its stores open at least 14 months in the latest third quarter, reversing declines in the past five quarters, but hurt the company's profits.

Net earnings fell to $154 million, or 42 cents a share, in its third quarter that ended November 26, from $217 million, or 54 cents a share, a year earlier.

Excluding items, it earned 47 cents a share, missing the analysts' average estimate of 51 cents a share, according to Thomson Reuters I/B/E/S.

Total sales rose to about $12.10 billion, missing the analysts' average estimate of $12.14 billion.

Its shares were down about 9 percent at $25.55 in heavy premarket trading.

(Reporting by Dhanya Skariachan; Editing by Derek Caney and Maureen Bavdek)