This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Update: Best Buy, Ames Get Pummeled After Warnings

Updated from 11:39 a.m. EST

Investors bailed from Best Buy (BBY - Get Report) Thursday, driving its shares down 38% after the electronics retailer warned that its profits for the rest of the year would sag amid a tougher economic climate.

Best Buy, which sells computers, software and appliances as well as electronics, explained that it had increased promotional activity at its stores to attract more reluctant consumers, but the efforts likely would lower its earnings and gross margins.

"The issues affecting Best Buy are identical to those every other retailer is experiencing," said Aram Rubinson, who tracks the company for PaineWebber. Heightened competition along with higher interest rates and fuel prices have had an adverse impact on retailers like Best Buy.

Despite the poor results, Best Buy has taken "reasonable and responsive" steps to address the hostile retail environment, saying it would consider delaying the opening of new stores and would "put capital expenditures under the microscope," Rubinson said.

For now, though, the company must brace for some turbulence. In the third quarter, Minneapolis-based Best Buy said it expects to record earnings of 27 cents a share, well below the consensus analysts' projection of 44 cents a share, according to First Call/Thomson Financial.

And the situation won't improve by the fourth quarter, when Best Buy expects to post profits of 90 cents a share, lower than the anticipated $1.02 a share.

"We are experiencing lower gross margins as retailers fight to gain market share in a more cautious consumer environment," Best Buy Chief Financial Officer Allen Lenzmeier acknowledged in a statement.

Wall Street was unforgiving. Best Buy's stock closed Thursday regular trading down $20.13 to $32.25 after reaching a 52-week low of $33. Its shares took a beating last month after Circuit City (CC), its rival, said it would miss its third-quarter earnings mark because of sluggish sales of electronics and office supplies.

Circuit City had previously announced it would abandon the appliance business to focus on more profitable products. The departure, however, failed to stimulate Best Buy's appliance sales as the company had optimistically expected, Best Buy executives said in a conference call Thursday.

Fresh competition in the appliance sector has rushed into the void, they said, restraining Best Buy's sales. Adding to the frustration, sales results at some of the company's new stores have been lackluster, according to company officials.

Best Buy is certainly not alone. Saying higher fuel prices and interest rates have slowed down consumer spending, Ames Department Stores (AMES), the discount retailer, reported a wider-than-expected third-quarter loss and predicted a lackluster fourth quarter.

Rocky Hill, Conn.-based Ames also said Thursday that it would close 32 stores, cut 2,000 jobs and take a charge of up to $140 million in the fourth quarter. Its shares promptly ended down $1.81, or 39%, to $2.91 after reaching a 52-week low of $2.25.

Ames said it posted a third-quarter loss of $37.2 million, or $1.27 a share, compared with a loss of $27.7 million, or 95 cents a share, a year ago. And in the fourth quarter, Ames said it expects earnings of $2 a share, which would lead to a loss of $1 a share for the full fiscal year.

"We are taking prompt corrective action now, so that we can be properly positioned for an improved year in 2001, despite the retail climate," Joseph Ettore, the company's chairman and chief executive, said in a statement.

Faced with unfavorable economic factors, retailers must focus on what they can control. "It's sort of a grin and bear it time," said Rubinson of PaineWebber, which rates Best Buy's stock a strong buy and has not done any underwriting for the company.

"They just have to continue to make sure that they're doing the right things," he said.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
BBY $35.45 -3.50%
AAPL $107.72 -4.47%
FB $87.23 -2.46%
GOOG $597.79 -3.31%
TSLA $238.68 -4.20%

Markets

Chart of I:DJI
DOW 16,058.35 -469.68 -2.84%
S&P 500 1,913.85 -58.33 -2.96%
NASDAQ 4,636.1050 -140.4030 -2.94%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs