Best Buy (BBY) Reports Near-90 Percent Profit Drop

Aug 21, 2012 10:33am
gty best buy jef 120821 wblog Best Buy (BBY) Reports Near 90 Percent Profit Drop

(Image credit: Daniel Acker/Bloomberg/Getty Images)

Best Buy Co. today reported a nearly 90 percent drop in profit for the second quarter, owing to tight margins and poor sales.

Shares were down more than 6 percent to about $17 this morning at the end of the company’s conference call with stock analysts, which was shorter than usual.

The Minneapolis-based company reported profit of $33 million in the second quarter from $260 million a year ago in the same period, a drop of about 87 percent.

The company said little about its new CEO,  Hubert Joly, who is expected to take the reins in September, nor the takeover offer from founder Richard Schulze, except that the offer still stands.

R.J. Hottovy, senior retail analyst with investment firm Morningstar, said he had expected the steep drop in profits, much of which came from a squeeze in company margins.

A few factors contributed to the shortfall, Hottovy said. In the smartphone category, companies like Apple and Samsung control a large part of retailers’ sales. In addition, Hottovy said consumers are buying smaller televisions, which also have lower profit margins.

He said company sales numbers came in slightly better than anticipated in the United States, some of which was because of stronger promotional strategies to drive notebook sales. Company sales were $10.55 billion for the quarter, a drop of 3 percent.

“I think today’s results are the latest sign the company is in transition, not only internally but externally,” Hottovy said.

The consumer electronics industry has become more competitive as customer shopping shifts online.

“There was not a lot of detail about the turnaround plans, which is a little bit unnerving,” Hottovy said. “But part of that is expected with a new CEO.”

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