(Best Buy article updated with analyst commentary and poll.)
NEW YORK (
is plunging after severely missing third-quarter earnings estimates and slashing its full-year outlook. As sentiment turns sour on the stock, what does this mean for 2011?
During the quarter, which included the all-important Black Friday weekend, the electronics retailer earned $217 million, or 54 cents per share, from $227 million, or 53 cents, in the year-ago period. Wall Street was looking for a profit of 61 cents from Best Buy.
Best Buy revenue declined to $11.89 billion from $12.02 billion in the year prior, while same-store sales fell 3.3%. This compares with consensus estimates of $12.47 billion.
The company attributed its weakness to losing sales and about 100 basis points of market share in televisions, video games and mobile devices to competitors. Management estimates that TV sales declined in the low double-digits.
"As we talked about in our Thanksgiving weekend review, Best Buy was walking a fine line by balancing fewer promotions (at the risk of sales) against better margins, and it appears that their conservative promotional stance magnified weakness in the category," J.P. Morgan analyst Christopher Horvers, wrote in a note. "Notably, Best Buy has historically treated market share as the Holy Grail, and it lost share in both TVs and notebooks, two of their largest categories."
In other words, it would seem that Best Buy is unable to drive both sales and margins simultaneously. Gross margin widened to 25.1% from 24.5%.
"We believe that the focus on wirless and gross margins hurt them on Black Friday weekend," Janney Capital Markets analyst, David Strasser, wrote in a note. "Wireless is a tough product to sell on busy days, and that was a big focus for the company. Additionally, we believe Best Buy did not go deep enough discounting TVs on Black Friday, likely the result of their desire to protect gross margins."
Strasser believes mass merchants, in particular
, were the incremental share gainers this year. Other potential beneficiaries are
Looking ahead, Best Buy now expects full-year earnings in the range of $3.20 to $3.40 a share, compared with prior guidance in the range of $3.55 to $3.70 a share.
This does not bode well for the holiday season, and Best Buy said it doesn't "have complete visibility to how customers will behave over the next several weeks."
Shares of Best Buy are tanking 14.6% to $35.59 in early morning trading. Meanwhile,
is also falling 2.6% to $18.71, HHGregg is tanking 8.6% to $22.50 and GameStop is down 1.1% to $21.68.
Despite Best Buy's disappointing earnings report, Strasser says he would be a buyer of the stock on today's weakness. "This is a company that has volatile earnings due to the nature of their volatile business model," he wrote. "Buying on the weakness tends to work."
Over the past 52-weeks Best Buy has traded as low as $30.90 and as high as $48.83.
Given this, how do you think Best Buy's stock will perform in 2011? Take our poll below and see what
-- Written by Jeanine Poggi in New York.
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