Video (01:33) : Best Buy turned a profit in the third quarter and is ready to compete for the holiday season.
Best Buy Co. Inc. said Tuesday that it will resort to bare knuckles if necessary to gain sales and market share in the looming holiday season.
In a conference call with Wall Street analysts, CEO Hubert Joly sounded combative as he exhorted his company into retail battle for the next six weeks.
"We're in this to play to win," Joly said. "Best Buy is back. Our strategy is to be price-competitive. We will not be shy about investing in winning the holiday season."
Good thing. Wal-Mart said Tuesday that it would match Black Friday blockbuster deals from Best Buy and Target starting this Friday.
That's another signal that the 2013 holiday season is poised for a crazy launch. Stores are opening earlier — Best Buy and Wal-Mart will open their doors at 6 p.m. on Thanksgiving Day — and the promotions are becoming more aggressive.
Best Buy Chief Financial Officer Sharon McCollum warned that the Richfield-based company was willing to sacrifice ever-important profit margins to meet the competition.
"We're highly aware of the statements from our competitors and we know we're facing an increasingly promotional environment, but we will be competitive on price and that will have a negative impact on our gross margins," McCollum said.
Wall Street showed concern about a win-at-any-margin strategy. The big-box retailer's stock, which has traded in the low $40s since mid-October, dropped 11 percent Tuesday to $38.78.
That overshadowed Best Buy's third-quarter earnings report, which showed sales basically flat year-over-year while comparable-store sales — a key retailing metric — rose for the first time since 2010.
Analysts react
Raymond James analyst Dan Wewer said Best Buy needs higher margins and improvement in same-store sales for the company's stock to outperform others in the retail sector as it has recently.
"It now appears such a scenario is unlikely to be realized in the upcoming holiday season," Wewer said in a note to investors.
Brian Yarbrough of Edward Jones & Co. said Best Buy is profiting on its internal cost-cutting efforts more than on sales and revenue.
"Best Buy is in way better shape than it was a year ago, but what you can't control is the competitive environment,'' Yarbrough said in an interview Tuesday. "What if Amazon continues to lower its prices? You can't cost-save to prosperity."
Other analysts were more upbeat on Best Buy's financial prospects.
"We believe the better-than-expected [same-store sales] results … indicate clearly that the company continues to make significant progress in its aggressive turnaround efforts," said Oppenheimer's Brian Nagel.
Comparable-store sales — at Best Buy's U.S. stores open for at least a year — rose 1.7 percent. Analysts were expecting a gain of 0.8 percent. In the year-ago period, same-store sales declined 4.3 percent in the same period. The last time Best Buy experienced comparable sales growth was in the May-to-July quarter of 2010, when it saw a 0.7 percent jump.
For the quarter that ended Nov. 2, Best Buy said it earned $54 million. The profit amounted to 16 cents per share, above analysts' consensus forecast of 12 cents. A year ago, Best Buy reported a loss of $10 million, or 3 cents a share, in the same period. Revenue at the Richfield-based retailer was $9.36 billion, down marginally from $9.38 billion a year ago. The company has been experiencing declines in sales since 2009, though they have tended to be bigger drops than seen in the most recent period.
In an interview, Joly said the company's efforts to differentiate itself from other electronics sellers and online competitors was paying off.
"We're very pleased with the quarter. Positive comp sales of 1.7 percent is great progress, better than expected," Joly said. "Online growth of 15 percent is very meaningful. We took out more than $500 million in [operating] costs. That's very meaningful too."
Best Buy's performance was also shaped by timely releases of new smartphones from major manufacturers like Apple Inc. and Samsung Electronics Co. as well as the seasonal uptick in sales of TVs.
Like other retailers, Best Buy tends to see its biggest sales and profits in the November-to-January quarter, when consumers shop for the year-end holidays.
David Phelps • 612-673-7269