Best Buy vows it will be competitive on prices during the holiday season but says that could hurt profits.
That warning helped drive down the company’s stock by as much as 11 percent Tuesday.
“The reason the stock is down so much is their caution around the fourth quarter and more discounting and they’re going to have to continue to lower prices to be more competitive,” said Brian Yarbrough, a retail analyst with Edward Jones. “As you do that that weighs on profitability.”
The prices and profits warnings come as the consumer electronics retailer reported net income of $54 million for its most recent quarter, compared with a $10 million loss a year earlier.
Hundreds of millions of dollars in cost-cutting has helped Best Buy compete on price, Yarbrough said. Comparable store sales increased slightly in the most recent quarter, ending a streak of 12 consecutive quarterly declines.
The company will need to grow sales at a much faster clip while competing on price and posting profits that please Wall Street, Yarbrough added.