Best Buy’s profit falls short

For Best Buy Co., Wal-Mart Stores Inc. may be the Grinch who steals Christmas.

Best Buy said Tuesday that fierce competition forced it to cut prices in its fiscal third quarter more than it had planned, so its profit growth fell short of Wall Street’s expectations.

It may have been a case of the nation’s largest retailer versus the nation’s largest consumer electronics retailer.

Weeks ago Bentonville, Ark.-based Wal-Mart began slashing prices on everything, including flat-panel televisions and notebook computers, two hot items for holiday shoppers.

Inevitably, when Wal-Mart discounts, other retailers feel the pain. Best Buy was not immune.

“Consumer electronics is the focus for the holidays and everyone wants a piece of the pie,” said Darren Jackson, chief financial officer of Best Buy.

But the Minneapolis-based company said the short-term hit to profit margins was worth it because its discounts drove foot traffic through the stores and helped Best Buy gain market share.

“We chose to match or beat on categories like name-brand flat-panel TVs, and honestly, if we could do it all over again, we’d make exactly the same decision,” said Brad Anderson, vice chairman and chief executive.

Wall Street wasn’t as sure about the strategy. Best Buy shares fell $2.62 to $51.30 on Tuesday.

The company’s revenue grew 16% to $8.47 billion for the quarter that ended Nov. 25, from $7.33 billion last year.

Sales in stores open at least 14 months, a key measure of industry performance, rose 4.8% for the quarter.

Net income totaled $150 million, or 31 cents a share, compared with $138 million, or 28 cents, a year earlier.

But analysts polled by Thomson Financial had expected earnings of 35 cents a share and revenue of $8.42 billion.