Best Buy Co. Inc. finally delivered with better-than-expected holiday sales numbers Thursday, but the Richfield-based retailer also warned that sales could slide and profits could be squeezed this year.
Shares tumbled 14 percent to $34.30 by the end of the day.
The company said it doesn't expect an uptick in sales of smartphones and big-screen televisions to continue at the same level after the holidays. It forecast same-store sales growth in the first half of the year to be flat to negative low-single-digit percentages.
But the company also reported that same-store sales grew 1.9 percent in the first nine weeks of the fourth quarter. U.S. stores performed even better, with a 2.6 percent increase in same-store sales. The company had forecast flat sales.
CEO Hubert Joly said in a statement that the better economic environment as well as strength in televisions and smartphones helped the retailer during the holidays.
"These two categories were the primary drivers of our year-over-year revenue growth, more than offsetting significant weakness in tablets," he said.
Overall revenue in the holiday season rose to $11.4 billion, up from $11.1 billion in the same period a year ago, and online sales rose 13.4 percent. Best Buy's holiday results excluded its Chinese operations, which it announced in December it would sell.
Besides an expected sales drop in consumer electronics this coming year, Best Buy executives also said that deflationary pricing and declining demand for extended warranties could affects its results this year. They also said Best Buy will make investments that would likely put pressures on margins.
Peter Keith, an analyst with Piper Jaffray, wrote in a research note that Best Buy executives have also given a conservative outlook for the last two quarters and the company's results have exceeded those expectations. But he said the company's announcement could still be reason for worry.
He said the potential for a decline in comparable-store sales "in what we see as the strongest product cycle backdrop in recent memory is highly concerning."
Wall Street's confidence in Best Buy had been building momentum for several months, especially amid the launch of the iPhone 6, falling prices for pricey ultrahigh definition televisions and lower gas prices.
Its stock price had nearly doubled in the last year to just shy of $40 at the end of trading on Wednesday.
A similar optimism built up in 2013, with shares more than tripling that year, before the retailer shocked analysts with a holiday sales drop of 0.9 percent in same-store sales, which sent its shares tumbling.
The retailer also surprised analysts in November, but in a good way, when it reported its first sales lift in nearly two years and said that it had nearly doubled its profits in the third quarter. Same-store sales grew 2.2 percent in that quarter.
On Wednesday, the National Retail Federation said total holiday sales rose 4 percent, its strongest growth since 2011. But it also noted that retail sales had slipped 0.9 percent from November to December, raising concerns about a slide in consumer spending despite the drop in gas prices.
A bright spot that the NRF noted was that electronics and appliance store sales last month rose 7 percent compared with the previous year.