Best Buy warns of 'increasingly promotional' holiday quarter; price wars on deck

Best Buy warns of 'increasingly promotional' holiday quarter; price wars on deck

Summary: The upcoming December holiday quarter will be tough, the U.S. retail giant warned. While it's optimistic about customer volume, gross margin will likely take a hit.

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TOPICS: Tech Industry
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(Image: Hohbach-Lewin)

U.S. retail giant Best Buy warns of a tough fourth quarter ahead of the December holiday season in its fiscal third quarter earnings report.

The company reported net income of $54 million, or 16 cents a share, for the three months ending November 2 (statement). But revenue was flat at $9.36 billion, up by a meager 0.3 percent.

Wall Street was expecting 11 cents per share on revenue of $9.37 billion, according to Thomson Reuters.

Shares in the company fell by more than 6 percent in pre-market trading in New York on Tuesday morning.

With the holiday season, set to kick off next week, almost a week shorter than on the year-ago quarter, brick-and-mortar stores are facing the prospect of narrower margins as they attempt to out-do each other in price undercutting.

Meanwhile, Best Buy continues to cut costs, increase training, and lower product prices in efforts to get customers through the doors. 

Chief executive Hubert Joly said, however, this strategy was "starting to pay off." But looking ahead to the company's fiscal fourth quarter, investors may be in for a bumpy ride.

The electronics retail chain said a number of factors are squeezing the company's profit driver ahead of Thanksgiving and Christmas, not least as a result of the rising competition. The company said it's opening its stores earlier — 6 p.m. on Thanksgiving Day, compared to 12 midnight last year — in order to increase promotional offers. 

"It's table stake," Best Buy chief financial officer Sharon McCollam said in prepared remarks. "We know that we will be facing an increasingly promotional environment."

Describing how these "pressures could financially impact" the retail giant's fourth quarter earnings, which are expected to be reported in March 2014, McCollam made an outright declaration on the price wars. "If our competition is in fact more promotional in the fourth quarter, we will be too and that will have a negative impact on our gross margin."

What's clear is the increasingly competitive environment retailers are finding themselves in. Lowering prices in order to get customers through the door is a strategy on its own. But when every other retailer is doing it, the industry is cutting its nose to spite its face.

All eyes should be on the traditional retail giants come March when most companies report their holiday earnings. We'll see then what the impact to their collective declaration of price war had on the retail space.

Topic: Tech Industry

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25 comments
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  • I for one...

    ...have no plans to set foot in a Best Buy this holiday season. If I'm lucky, I won't set foot in ANY B&M store except for grocery or drug stores.
    jvitous
    • I don't even have a home

      I live virtually from my office through the Sims. I have a virtual wife, virtual kids and a virtual dog. They all go virtual shopping for me, I take my kids to virtual sports practice and occasionally virtually take my virtual wife to the movies all while sitting at my desk at work after hours. I have saved hundreds of thousands of dollars by simply not living. Its been awesome.
      A Gray
    • I will continue my tradition...

      of buying gifts exclusively via the net. No crowds, lines or sore feet for me! This will make the 6th year in a row.
      DontUseMicrosoftAtAll
    • Missing Your Chance

      What about all that good technical advice from the high school grads who don't go to college - they get at least an entire week of training of what a computer is and how it works - they are the EXPERT Geek Squad after all!

      And you would be missing out on the "Screw the Customer" store policy - wouldn't you feel left out in the holiday season?
      HackerJ
  • Best Buy Demos

    I use Best Buy for demos of major purchases. I try to buy things there but often end up on the web for price and availability. I would really hate to see Best Buy die. Where else can you go for demos of high end products. Still, I think it is inevitable.
    MichaelInMA
    • if you like them spend money there

      Otherwise they will die. They are providing more value than the online retailers since you can see the product, so we should be willing to pay a bit more at BB.
      Luke Skywalker
  • One good reason to shop at Best Buy

    I buy stuff from Best Buy for one reason - 18 months free financing.

    I certainly don't go to them for advice on selecting the best product. Well, actually, I did try to do that recently on something I didn't know anything about, a Roomba. The polite and eager sales associate (or whatever they call their low paid part time store minions) didn't really know anything about the differences between the two models they had, but he did show the Mrs some very nice pictures of his dog on his smart phone.

    I'm currently shopping for something I do know something about, a new high end laptop for my consulting work. My needs are, if not simple, at least straightforward: obviously a Windows 8.x machine (I plan on doing actual software development work on it), 4th gen quad core i7, RAM at least expandable to 16 GB, ability to at least swap out the included HDD with a SSD, 15.6" 1080p touchscreen, integrated DVD reader/writer, decent battery life, not too physically big or heavy, quality brand name. Good luck finding such a rare beast on Best Buy's or anyone else's showroom floor. But wait! Best Buy lists just the machine I want on their online purchasing site and it qualifies for 18 month free financing and free shipping and it's on sale for $1011! Hurray! Oh, but wait. It's out of stock for shipping and will never be available in the stores which they only stock with overpriced consumer grade crap.
    Sir Name
    • I agree.

      I've done this before to purchase a couple of MacBook Air's. Saved 10% off the Apple web and got the free financing. Certainly would never spend a dollar of Microsoft stuff but that's your cross to bear...
      DontUseMicrosoftAtAll
      • re:

        Speaking of (way) overpriced consumer grade crap...
        Sir Name
        • What does that make Surface?

          So if Macs are way overpriced and Microsoft has priced the Surface tablets with higher profit margins than Apple does what exactly does that make Surface?
          rbgaynor
          • clone

            What, exactly does that make Microsloth?
            A clone of innovative companies, just as they have always been, six months behind the true innovators.
            captainanalog
    • Other places offer free financing too

      Like Amazon, for example.
      jvitous
    • I bought a laptop of similar spec

      From Amazon back in August with free financing for about the same price, $1,100. The only difference was no SSD but a discreet nVidia GPU.
      jvitous
      • re:

        Was it an Asus N550JV-DB72T? I see Amazon has them for $1011 and 12 months free financing. Tempting.
        Sir Name
  • Screw Them

    I stopped shopping at Best Buy when they decided that my loyalty as a customer wasn't worth the extended return and period. Seriously, that was the only reason I stayed loyal and then they blew it.

    Of course, now that I've mostly killed that option, they offer me 45 day returns instead of 60 8 months after killing the feature. I've elected not yo return to them for future purchases as I now get everything off of Amazon for less.

    Crud, I watched more than a 100 chumps standing in line for 8 hours to buy the PS 4 and I logged into Amazon at Midnight and 2 minutes later I bought one for $387 / no tax / and free two day shipping.
    slickjim
    • Standing in Line

      My wife and I did that once not so much for the prices but for the late night party. We got there about 8:00 and waited about 4 hours. Brought our chairs and blankets and food and beer. For the really good prices they handed out coupons and had handed most of them out before they got to us. We were warm and comfy. By the time they opened the line was about 5 times longer. There was a variety of entertainment, kids running around, couples arguing because they were cold, pushy people in line the cops kick out, etc. We would not do it again but did it once just for something different. We had a good time and good beer.
      MichaelInMA
  • Screw 'em

    I had the bad luck to buy a stereo store just at the beginning of the takeover of the mid-price market by Circuit City, Best Buy, etal.
    I offered knowledge and passion about product, expert advice, and SERVICE. These companies can buy in quantities sufficient to sell for less than an independent store can even buy for, and they still can't make a profit!?!
    Let 'em rot!
    And, you people who would rather save a few bucks on your tech purchase than to have real service from an avid professional: screw you too!
    captainanalog
    • Where can I get...

      ...service from an avid professional at Best Buy?! They're all underpaid minions trying to sell me an extended warranty. Now I can appreciate getting good service and information just as much as you can, but currently I get more information on sites like Amazon.com than Best Buy; and I've NEVER had a problem returning a bad purchase to Amazon.
      el1jones
      • Precisely!

        Precisely my point!
        You can't expect service, nor expertise, from some minimum-wage, commission-only lackey.
        captainanalog
        • Furthermore

          You can't expect to get anything but Chinese CRAP from any of these big-box stores.
          STAY AWAY!
          That's how the Market works, supposedly.
          captainanalog