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Low TV, Laptop Sales Hurt Best Buy’s 3Q

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(credit: Kevork Djansezian/Getty Images)

(credit: Kevork Djansezian/Getty Images)

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MINNEAPOLIS (AP) — Best Buy Co.’s third-quarter net income fell more than expected as it lost sales of lower-priced TVs and laptops to competitors, and more expensive 3-D and Internet-connected TVs failed to catch on.

Shares of the largest U.S. electronics chain fell nearly 15 percent Tuesday as the results raised fears over Best Buy’s holiday season. The company also cut its guidance below analyst expectations.

Best Buy benefited when Circuit City went out of business last year. Now it’s getting squeezed between online sellers like Amazon.com and discount stores like Walmart and Target. All sharply reduced prices on flat-screen TVs to drive sales during Black Friday and the busy shopping weekend over Thanksgiving.

CEO Brian Dunn said Best Buy’s strategy instead is to offer competitive prices for brand-name TVs rather than discounting lower-end TVs to drive sales.

But that strategy caused a revenue shortfall because pricier 3D TVs and Internet-connected TVS proved less popular than Best Buy expected — while tablet computers and smartphones have captured consumer’s minds and wallets.

According to research firm NPD Group Inc., TV units sold increased 2 percent from January through November 2010, but overall revenue from TVs fell 8 percent, indicating people are buying cheaper TVs and a majority of households already have flat-panels.

“We’re on the downslope on the flat-panel TV product life cycle,” said Morningstar analyst R.J. Hottovy. More are turning to tablet computers, smart phones and e-readers instead. “Portable electronics are driving sales of consumer electronics right now.”

Best Buy, based in Minneapolis, said its market share in TVs, laptops and video game software fell during the quarter, which ended the day after Thanksgiving.

Revenue in stores open at least 14 months fell 5 percent in the U.S., hurt by lower revenue from TVs and entertainment hardware and software.

Best Buy said it has stepped up discounts for 32-inch TVs in December and increased its offerings of laptops under $400.

“We’ve made price adjustments in the third quarter and in the fourth quarter (on laptops) to be more aggressive, because the consumer is definitely showing a propensity at the low end,” said president of the Americas Mike Vitelli.

Even many shoppers willing to spend more for the latest technology seem to be taking a “wait and see” position. Analyst Paul Gagnon, an analyst for the research group DisplaySearch, said 3D TVs haven’t caught on yet because they are expensive and there hasn’t been much programming available.

“There’s a bit of a chicken-and-egg dynamic — content makers don’t want to make 3-D (shows) if there isn’t going to be anybody to watch them,” he said. But he expects the technology will eventually be standard on TVs, and consumers have showed they’re willing to wait for prices to come down.

Best Buy said some shoppers are also holding off on buying laptops and netbooks because they’re waiting to buy a tablet as more come out next year.

“More overall customers migrating to tablets and customers are waiting as they consider their purchase decisions on tablets versus netbooks and notebooks,” Dunn said.

Best Buy’s net income in the fiscal third quarter fell 4 percent to $217 million, or 54 cents per share, from $227 million, or 53 cents per share, last year. Analysts polled by Thomson Reuters, on average, expected 61 cents per share.

Revenue fell 1 percent to $11.89 billion, from $12.02 billion last year. Analysts expected revenue of $12.45 billion. Revenue in stores open at least 14 months fell 3.3 percent.

The measure is considered an important measure of a retailer’s financial health because it excludes stores that open or close during the period.

“Best Buy has seen discount store and online competitors get better in the category, while smaller regional players continue to expand,” said Jefferies & Co. analyst Daniel Binder. “Combined with little benefit from new TV technologies as well as iPad cannibalization in mobile computing, Best Buy is left in a difficult position near term.”

Best Buy now expects net income of $3.20 to $3.40 per share, down from $3.55 to $3.70 per share, hurt by lower U.S. revenue. Analysts expected $3.59 per share.

Shares fell $6.18, or 14.8 percent, to $35.52. The stock has traded between $30.90 and $48.83 during the past 52 weeks.

(© Copyright 2010 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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