Economic slump punches Best Buy

MINNEAPOLIS — The nation's economic woes apparently have caught up with its largest consumer electronics retailer.

Best Buy slashed its profit and revenue forecasts for fiscal 2008 Friday, warning that a weak economy will mean fewer sales of flat-screen televisions, MP3 players and video games. The Richfield, Minn.-based company said it now expects to earn $3.05 to $3.10 per share, down from its previous estimate of $3.10 to $3.20 a share.

The economy "grew more challenging after the holidays," Interim Chief Financial Officer Jim Muehlbauer said. "Our post-holiday results are not going to be what we originally expected."

Best Buy shares fell 2.5 percent, or $1.15, to close Friday at $44.62. The stock has dropped 16 percent since December.

Sales at stores open for at least a year will rise 2.5 percent to 3 percent for fiscal 2008, which ends March 1, Best Buy said, compared with its earlier projection of a 4 percent gain. The company expects same-store sales to fall slightly in the fourth quarter.

The economic slump seemed to catch Best Buy off-guard. Buoyed by a strong third quarter, in which profits jumped 52 percent, the company in December raised its annual profit forecast and suggested 2008 would be another strong year.

"We're basically very optimistic about the long-term future because so many elements of what we're bringing to market seem to be working at this stage," Chief Executive Brad Anderson told the Star Tribune at the time. "We're very bullish on where the year will finish. Even more so ... we think the horizon for the company the following year is very good."

But January proved to be a soft month as consumers favored discounted items instead of the higher-priced merchandise Best Buy had hoped they would buy, analysts say.

"For several retailers, business was nonexistent in January," said Lauri Brunner, an analyst with Minneapolis-based Thrivent Investment Management, which owns 1.3 million shares of Best Buy stock. "Consumers are shopping for events. For the other days of the week, there is not a reason to shop."

With the exception of the Northeast, sales of flat-screen televisions for the Super Bowl also did not materialize, she said.