Best Buy Short-Circuits

Updated from 2:06 p.m. EST

Best Buy(BBY Quote) shares slid Tuesday after the electronics retailer missed third-quarter earnings expectations, saying intense competition put a damper on margins.

While the company downplayed the disappointing results, calling the quarter a "speed bump," the margin issues raised questions about how retail's big players will fare during an already heavily promotional holiday season.

"This is going to be the strongest consumer sector," Craig Johnson, president of Consumer Growth Partners, said of electronics, "but the question is how much money are retailers going to make at it?"

The profit concerns sent shares of Best Buy down $2.62, or 4.9%, to $51.30, and also weighed on rival Circuit City(CC Quote), which closed down $1.36, or 5.4%, to $23.58. Circuit City is set to post its third-quarter results next Tuesday.

For the third quarter, Best Buy earned $150 million, or 31 cents a share, up from $138 million, or 28 cents a share, a year ago.

Revenue increased 16% to $8.47 billion, driven primarily by new-store openings and strong consumer electronics sales. Same-store sales rose 4.8%.

Analysts expected earnings of 35 cents a share and revenue of $8.4 billion, according to Thomson First Call.

"While a very competitive climate put pressure on our margins, resulting in earnings below our original expectations, I continue to support the strategic choices we made," said Brad Anderson, vice chairman and CEO of Best Buy, in a statement.