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Best Buy's bet: Drones will sell well for the holidays

Best Buy indicates there's interest in drones for the holiday shopping season amid demand for wearables and other known categories.

Best Buy is betting that drones will be a hit for holiday shoppers along with wearables and connected devices.

The company outlined where it thinks the technology ball is going as it reported its third quarter results. The company reported third quarter earnings of 37 cents a share on revenue of $8.82 billion, down from $9.03 billion a year ago. Non-GAAP earnings were 41 cents a share. The earnings were better than expected, but sales were light as was the outlook for the fourth quarter.

Best Buy's results are worth watching in the volatile retail sector because it's one of the few technology pure plays. While tech is expected to do better than apparel and other categories Best Buy's same store sales in the quarter were up a mere 0.5 percent. Online sales were up 18.3 percent in the third quarter, but that was off the 21.6 percent rate from a year ago.

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The good news is Best Buy's comparable store tally is better than a lot of retailers. The bad news is that the quarter got tougher as it went along for retailers overall.

Also see: CNET's holiday gift guide

Meanwhile, Best Buy said the Black Friday dynamics have changed. Promotions are underway for the entire month of November. CEO Hubert Joly said it's hard to predict where demand will land in the tech space, but Best Buy outlined the following.

  • There was interest in drones toward the end of the quarter.
  • Computing, wearables and 4K televisions were in demand.
  • Tablets, mobile phones and digital imaging sales struggled. On the bright side, Best Buy's lower margin tablet sales fell and that helped boost gross profits.

Joly noted a bevy of wild cards. First, it's unclear whether Black Friday will be a boon. It's also unclear what happens when apparel is discounted 75 percent due to bloated inventory and whether that influences tech buying decisions.

Responding to an analyst, Joly said:

It's hard to directly answer your question about exactly what the demand is going to be, but we've tried our best today to give you as much transparency as possible around the categories.

CFO Sharon McCollam said:

Black Friday as we all know has turned into black November and we believe that that has a particularly stronger impact on the consumer electronics category than other categories. So even going from the last weeks of October to the first week of November, we just got that data off the press. We actually saw a significant improvement from the last weeks of October and the first week of November.
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