Best Buy waged a holiday price war with Amazon — and it got hurt bad.
Shares of the nation’s biggest electronics chain lost nearly a third of their value Thursday after the company warned sales and profits during the holiday retail period got slammed by unexpectedly brutal competition.
The retailer’s stock, which had more than tripled in 2013 on enthusiasm about an aggressive turnaround plan under CEO Hubert Joly, lost 29 percent to close at $26.83.
Joly, a former hotel-and-restaurant exec who took the reins in September 2012, told analysts on a Thursday conference call that he planned to slash costs this year to shore up profitability, and vowed to maintain “a sense of urgency” in the company’s turnaround efforts.
Still, investors and analysts got spooked at the prospect of a sluggish year ahead for electronics retailers.
“The trend is definitely NOT their friend,” Wedbush Securities analyst Michael Pachter wrote of Best Buy in a Thursday research note, reiterating an underperform rating on the stock.
While Best Buy shares got battered, Pachter predicts they could still lose another third of their value during the next year, citing “further margin erosion, low visibility, lack of guidance and doubts about the sustainability of Best Buy’s turnaround plan.”
Last fall, Joly had boldly declared that Best Buy was poised to eliminate the phenomenon of “showrooming” — where shoppers visit its stores to examine big-screen TVs, laptops and mobile phones, only to buy them online elsewhere.
But the key to the strategy was slashing prices to match those at deep discounters like Amazon and Walmart, and that cut deeply into sales and margins.
Warnings of disappointing holiday sales have lately come from big chains including Family Dollar and GameStop, stoking worries about consumer spending and taking a bite out of retailers’ shares across the board.
Demand for mobile phones was notably weak, Best Buy’s Chief Financial Officer Sharon McCollam said.
Best Buy said sales at stores open at least 14 months lost 0.9 percent in the nine weeks ended Jan. 4, missing forecasts of a slight increase.
While the sales miss wasn’t huge, it spurred an unexpected drop in operating income, the company said.
“This lack of holiday follow-through is likely to re-stoke fears of permanent operating-margin pressures to the business,” said Stifel analyst David Schick.