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Best Buy

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is just too good to be true, investors seem to be thinking.

The leading home electronics retailer watched its shares drop sharply for the second time in a week Wednesday, putting the stock at levels it hasn't seen for three months. And as before, the culprit was a rival reporting that its business has slowed sharply since the end of an unexpectedly strong holiday season.

Analysts almost unanimously cried out that investors were being hasty in their dismissal of Best Buy, noting that the company has consistently outperformed rivals in recent years. But the stock fell 6% as Wall Street looked ahead warily to the company's scheduled earnings call next week.

I Did Taw a Putty Tat

Wednesday's slide was precipitated by a warning from


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, a smaller chain that caters to high-end consumers, of a shortfall in sales and earnings. Last Friday, similar comments from

Circuit City

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sent stocks across the sector sharply lower.

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"The main cause for the sales decline is a slowdown in traffic coming into the stores," said Tweeter in its statement. "This is being reported in every region."

In addition to the fall in traffic, Tweeter also blamed inventory shortages in key products such as flat-screen televisions. Circuit City -- which has its own problems because it is trying to revamp most of its stores -- also blamed inventory shortages as one reason for its shortfall.

But that problem isn't likely to plague Best Buy, say analysts, because it's the biggest player in the industry. Vendors simply do more to please their largest customer.

"I think it is a little premature to sell off the Best Buy shares today," says Todd Kuhrt, an analyst at Midwest Research. "I wouldn't want to make the assumption that just because Tweeter, along with Circuit City, is showing some weakness, that Best Buy is going to make a disappointing announcement." (He has a neutral rating on the stock and his firm does not do investment banking.)

In a note published Wednesday Salomon Smith Barney analyst William Julian agreed, saying Tweeter isn't an appropriate comparison because of its high-end focus. He also said that Best Buy has indicated to him that traffic levels remain strong and that the Eden Prairie, Minn., company doesn't face inventory problems similar to ones that have hurt Circuit City. (He reiterated his buy rating and has not had a recent banking relationship with Best Buy.)

Best Buy said that as a matter of policy it doesn't comment on current-quarter financials.


Regardless of what Best Buy's numbers end up looking like, it's now clear that the strong holiday season for consumer electronics retailers didn't carry over to the New Year. Data from the Consumer Electronics Association shows shipments through mid-February have beeen weak, with year-to-date shipments of analog products off nearly 20% from a year ago.

Shares in Tweeter dropped $5.57, or 25%, to $16.50, while Best Buy lost $3.72 to $66.28. Circuit City, which lost about 30% when it warned, was off 29 cents at $17.46.

Ultimate Electronics


, another smaller chain, was down $2.98, or 11%, at $24.

"I'm 98% confident we can eliminate the problem of lack of inventory at Best Buy for January and February," says Colin McGranahan, who follows the company for Sanford Bernstein. (He has a market outperform rating on Best Buy, and his firm does not do investment banking.)

Up until they see hard numbers, though, investors seem intent on eliminating some of the stock's recent gains.