Best Buy Warns Promotions Could Hurt Holiday Quarter Margins

Spencer Platt/Getty ImagesBy Dhanya Skariachan

Best Buy warned of an increasingly promotional environment heading into the holidays and promised to be competitive on price in the biggest selling season of the year, raising concerns about margins in the fourth quarter.

Earlier on Tuesday, discounter Walmart Stores (WMT) announced it will match select Black Friday offers on toys and electronic items from rivals Target (TGT), Toys R Us and Best Buy (BBY), starting as early as a week before the big shopping day.

“If our competition is in fact more promotional in the fourth quarter, we will be too and that will have a negative impact on our gross margin,” Best Buy Chief Financial Officer Sharon McCollam said in a statement.

The news overshadowed the better-than-expected quarterly profit from the world’s largest consumer electronics chain in the third quarter and dragged its shares down 6.6 percent.

Under Chief Executive Officer Hubert Joly, who took the retailer’s helm last fall, the company has cut costs by removing layers of management, eliminating hundreds of jobs and closing some unprofitable stores. It has also boosted cash by selling its stake in a European joint venture with Carphone Warehouse Group.

Best Buy’s net earnings were $54 million, or 16 cents a share, compared with a net loss of $10 million, or 3 cents a share, a year earlier.

Excluding restructuring charges and other items, it earned 18 cents a share, beating the average analyst estimate of 12 cents, according to Thomson Reuters I/B/E/S.

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