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Associated Press
Best Buy employee Christopher Gervais, right, rings up a 32-inch LED TV. Holiday sales at the retail giant dropped 3 percent.

A blue Christmas for Best Buy

Holiday sales fall, stock shares skid, survival fears rise

– Best Buy said Thursday it had disappointing sales during the holiday shopping season, raising concerns about the consumer electronic retailer’s ability to turn around its business.

Shares tumbled nearly 29 percent on the news, showing that investors are increasingly worried about Best Buy’s future. Best Buy’s stock price had more than quadrupled last year but had been down 7 percent since the beginning of this year.

The holiday season, which runs from November through December, is a critical period for retailers because it can account for up to 40 percent of their annual revenue, analysts say.

Best Buy was struggling even before the holiday season because of increased competition from online stores, notably Amazon.com, and discounters like Wal-Mart.

But under CEO Hubert Joly, Best Buy started a turnaround strategy that included revamping merchandise, training employees and cutting costs.

Best Buy went into the holiday season saying that it was unafraid of “showrooming,” when consumers check out items in stores and then buy them for cheaper online. It also said it would match prices of all retailers, including cheaper online rivals, but that policy ultimately led to an unexpected sales decline.

Joly also said that there was a lot of competition on price during the holidays and an “intensely promotional” environment. He added that Best Buy’s business was also hurt by supply constraints for key products, a drop in customer traffic and a disappointing mobile phone market.

Additionally, Joly said there was an overall decline in the consumer electronics market. As a result, total revenue for the nine-week period that ended Jan. 4 slipped 3 percent to $11.45 billion from $11.75 billion.

Domestic revenue declined to $9.75 billion from $9.91 billion, while international revenue fell to $1.7 billion from $1.85 billion.

Meanwhile, sales at stores open at least a year – a key indicator of a retailer’s health – fell 0.8 percent. But that was better than the 1.4 percent decline in the prior-year period.

“Best Buy is in a much better position than it was a year ago,” Morningstar analyst R.J. Hottovy said. “In my mind, the shares now more accurately reflect very competitive retail environment that will be present in the years to come.”

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