Best Buy the number one US electronics chain, slashed its fiscal 2009 profit forecast today, driven by weak consumer spending heading into the crucial holiday selling season.
Best Buy's announcement comes just two days after smaller electronics retail rival Circuit City Stores filed for Chapter 11 bankruptcy protection.
"Since mid-September, rapid, seismic changes in consumer behaviour have created the most difficult climate we've ever seen. Best Buy simply can't adjust fast enough to maintain our earnings momentum for this year," Chief Executive Brad Anderson said in a statement.
The company said it expects to end the third quarter with higher inventory levels, short-term borrowings and accounts payable than previously projected due to the drop in consumer spending.
Shares of Best Buy fell nearly 13 per cent in premarket trading.
"In 42 years of retailing, we've never seen such difficult times for the consumer. People are making dramatic changes in how much they spend, and we're not immune from those forces," said President and Chief Operating Officer Brian Dunn.
The company also faces increased competition from Wal-Mart Stores Inc, which has stepped up its advertising on electronics such as flat-panel televisions as a big part of its holiday push that emphasizes low prices.
With the US economy in what many economists say is a recession, most retailers, whether they sell clothes or higher-end electronics, are seeing sales pressured.
"People selling $30 pairs of jeans are struggling so imagine trying to sell a $3,000 television," said Jon Fisher, portfolio manager at Fifth Third Asset Management.
Best Buy said comparable store sales fell about 7.6 per cent in October after falling 1.3 per cent in September. It said comparable store sales in November 2008 through February 2009 could decline by 5 per cent to 15 per cent, leading to an annual comparable store sales decline of 1 per cent to 8 per cent.
Best Buy forecast fiscal 2009 earnings of about $2.30 to $2.90 per share, down from a prior forecast of $3.25 to $3.40 per share. Analysts, on average, had expected it to earn $3.03 per share, according to Reuters Estimates.
The company earned $3.12 per share in fiscal 2008.