Best Buy stock takes a hit with poor holiday sales report

The stock market rebounded sharply Thursday, but Best Buy was not among the winners. The retailer's shares closed down 10 percent after the company reported that holiday sales had fallen from the year before.

Weak demand for mobile phones was the main reason domestic sales fell 1 percent to $10.1 billion, Best Buy said. Without that headwind, the company said, total sales would have increased. And Best Buy said the company's results were better than consumer electronics sales industry-wide.

But those comments did little to placate investors or quell questions about the company's future.

Morningstar retail analyst R.J. Hottovy said the sales report rekindled investor doubts that Best Buy can increase sales and profits in the face of intensifying competition.

Hottovy said Best Buy doesn't have a roadmap for ensuring consistent sales, at least not one that Wall Street believes in. He also said manufacturers like Apple are increasingly able to sell directly to consumers, bypassing retailers. Amazon is a growing threat, too.

"It's pretty clear that Best Buy is also losing share to Amazon," he said. Amazon's growth was expected to be 27 percent for the quarter, he added.

Hottovy said Best Buy can be a survivor but likely can't be as profitable as it once was, given the competition it faces.

Retail consultant Howard Davidowitz said Best Buy suffered because there wasn't a good supply of hot new electronics that consumers covet.

"There were fewer customers and there was a lack of new technology," Davidowitz said. "That is critical. Their business is tied into new product development, and they didn't have enough of that."

Davidowitz said Best Buy has done a lot of work to boost its performance, including closing stores and improving its online operations. But it still has too many stores and they're too big for the company's traditional appliance and consumer electronics businesses, he said.

But Best Buy does have defenders on Wall Street.

BB&T analyst Anthony Chukumba said investors overreacted to the sales report, and ignored some real progress that he thinks Best Buy is making in reviving its business.

"You have a choppy stock market, and I think in a market like this investors tend to sell the stock first and ask questions later," he said.

Chukumba said Wall Street didn't like to see Best Buy end a streak of sales growth at comparable stores. But he disputed the theory that Amazon was much of a factor.

"Consumers just weren't as excited about the iPhone 6s as they were about the iPhone 6," Chukumba said. "Best Buy's execution was great. Best Buy continued to buy back stock."

Stock buybacks generally boost share prices, benefiting investors.

Typically, the final quarter of Best Buy's fiscal year accounts for about a third of its annual sales and most of its annual profits.

Taking the holiday sales into consideration, Best Buy expects its sales for the full quarter will drop about 4 percent.

The company will announce sales and earnings for the quarter toward the end of February.