Shares of Best Buy Co. Inc. fell to a five-year low Wednesday, a day after Standard & Poor's put the consumer electronics retailer's credit ratings on the verge of junk status, saying that it will be more challenged by the country's weak economic environment than previously expected.
The downgrade to one notch above junk status came a day after Fitch Ratings took the first step toward lowering its ratings on Best Buy by revising its outlook to "negative." Fitch's issuer default ratings on the company stands at three notches above junk territory.
Best Buy's stock closed Wednesday at $18.58, down 11.4 percent, a larger drop than the declines seen across the rest of the retail sector. Earlier in the session, shares fell as low as $17.52, a level not seen since 2003.
In a note to clients, Credit Suisse analyst Gary Balter wrote that the firm believes that Best Buy's stock drop Wednesday reflects the S&P downgrade.
"Unfortunately, in this market environment, putting the word 'credit' next to a retailer is toxic," Balter wrote.
The slide marks a sharp turnaround from just a few weeks ago, when investors were buying up Best Buy shares in the hopes that the chain would benefit from the demise of its longtime rival, Circuit City Stores Inc., which filed for Chapter 11 bankruptcy protection and is closing at least 155 stores.
But since then, Best Buy sharply reduced its profit forecast as a result of plummeting sales. Saying it could no longer accurately forecast results, the company last week warned that sales for the final four months of its fiscal year ending Feb. 28 could decline 5 to 15 percent. Those end-of-year sales typically generate more than half of Best Buy's annual profit.
"Our caution and concern with Best Buy is that their competitive position is reliant on their ability to provide a higher level of customer service," Rochdale Securities analyst Jaison Blair said.