Best Buy’s Holiday Plan Backfires

Source: Rob Lawton (roblawton) / Flickr

Electronics retailer Best Buy (NYSE:BBY) is watching its shares plummet on Thursday after announcing disappointing holiday sales results and issuing weak guidance for the fourth quarter of 2013.

According to the company, for the nine weeks ended January 4, domestic revenue fell 1.5 percent versus the same period last year. Same store sales declined 0.9 percent. Best Buy performed even more poorly internationally, with revenue outside the U.S. falling 8 percent due to currency exchange rates and store closings overseas.

Best Buy President and CEO Hubert Joly pointed to the heavy discounts Best Buy was forced to offer in order to remain competitive as the reason for the sales declines. “When we entered the holiday season, we said that price competitiveness was table stakes and an intensely promotional holiday season is what unfolded,” Joly said in the company’s press release.

“To advance our Renew Blue transformation, it was imperative that we live up to our customer promises — and one of these promises is to offer our customers competitive prices. This investment in pricing did come with a higher-than-expected cost, and we now estimate our fourth quarter non-GAAP operating income rate will be 175 to 185 basis points lower than last year,” he went on to say.

Best Buy had been expecting a difficult holiday season. When the retailer reported third-quarter financial results in November, shares fell on the company’s disappointing guidance for the fourth quarter. Joly at the time said that for the holidays, Best Buy would be “offering highly competitive prices, compelling promotions, and our Low Price Guarantee, as we believe that price competitiveness is table stakes.”

It seems as though even those super-competitive prices weren’t enough to get people into the store. Best Buy didn’t see the benefit of convincing people to buy more stuff through its huge discounts — it just ended up selling its goods for less. “The highly promotional environment has not led to higher industry demand,” Joly said in a conference call, according to a report from The Wall Street Journal.

Best Buy has been hit hard by more aggressive pricing from competitors, Amazon (NASDAQ:AMZN) in particular, as consumers use Best Buy stores as a place to test out products that they later buy for less online.

“The message behind today’s announcement is very clear to me. Best Buy is on this journey and in this business to win, acquire, and retain new and existing customers. I have complete faith in the long-term strategy and I am confident that management is taking the steps required to win and position the company for a successful future,” Best Buy founder and Chairman Richard Schulze said in a statement issued after the holiday results report.

Investors, however, are not feeling so confident about Best Buy’s ability to keep up with the competition. Shares were down more than 27 percent, to $27.21, during morning trading at the time of writing on Thursday. Best Buy will report earnings on February 27.

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