Best Buy Slammed By Drop In Consumer Spending - InformationWeek

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Best Buy Slammed By Drop In Consumer Spending

The consumer electronics retailer said the economic turmoil will cause same-store sales to fall up to 8% for the fiscal year, rather than the 2% to 3% growth it predicted.

Best Buy on Wednesday lowered its earnings outlook as the United States economic downturn took a heavy toll on sales at one of the nation's largest consumer-electronics retailers.

Best Buy said the current economic turmoil has led to a drop in consumer spending faster than expected, making it difficult for the company to adjust.

"Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we’ve ever seen," Brad Anderson, vice chairman and chief executive of Best Buy, said in a statement. "Best Buy simply can’t adjust fast enough to maintain our earnings momentum for this year."

Sales at stores open at least a year fell 7.6% in October, following a 1.3% decline in September. As a result, the company is expecting same-store sales to fall between 1% and 8% for the fiscal year ending Feb. 28. The company had expected same-store sales for the fiscal year to grow by 2% to 3%.

For the last four months of the fiscal year, which includes retailers' biggest sales period, the holiday shopping season, sales could decline by 5% to 15%, Best Buy said.

In light of these dismal forecasts, Best Buy lowered its earnings outlook to $2.30 to $2.90 a share on revenue of $43.7 billion to $45.5 billion. The company had forecast earnings of $3.25 to $3.40 a share on revenue of $47 billion.

"In 42 years of retailing, we’ve never seen such difficult times for the consumer," said Brian Dunn, president and chief operating officer for Best Buy. "People are making dramatic changes in how much they spend, and we’re not immune from those forces."

Best Buy's financial warnings followed a couple of days after rival Circuit City filed for bankruptcy-court protection. That action followed a loss of $162.7 million in the company's last fiscal quarter, which, coupled with the worsening economy, pushed the company's suppliers into tightening payment terms and credit to a point where the company couldn't continue to operate without help.

Best Buy said it expected to end the current fiscal quarter, ending Nov. 30, with higher-than-expected inventory levels, short-term borrowings, and accounts payable. "These increases are the result of the rapid downturn in consumer spending," Jim Muehlbauer, executive VP of finance and chief financial officer, said.

U.S. retailers last week reported that October saw the worst monthly sales decline in more than three decades, according to the Wall Street Journal. Almost 60% of chain stores said sales fell below forecasts.

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