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Stock Analyst Update

Best Buy Remains in the Driver's Seat

Despite weak consumer spending, the company's gaining market share.

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What Happened?
Consumer electronics kingpin Best Buy (BBY) warned investors and analysts Thursday morning that earnings per share for the third and fourth quarters ending November 25, 2000, and March 3, 2001, will be well below First Call consensus estimates. The company said third-quarter earnings per share would come in at approximately $0.27, compared with the consensus of $0.44, and fourth-quarter earnings would be around $0.90, compared with a $1.02 consensus. Increases in comparable-store sales, or stores open at least a year, remain on plan, around 5%. Management expects positive comparable-store sales trends to continue for the remainder of the year, albeit with lower gross margins on many products. Best Buy's stock fell 35% in Thursday morning trading.

What It Means for Investors
The announcement does little to change our opinion that Best Buy is the class of the electronics retail industry, and we think the stock's decline presents a great opportunity for investors. The expected earnings shortfall is the result of lower gross margins because of a weak consumer spending environment and intense price competition on commodified products such as DVD players, appliances, and personal computers. Best Buy's sales have not slowed, however, because the firm has cut prices to drive traffic to its stores. Thus, the company continues to gain market share from arch rival Circuit City (CC).

Mark Sellers does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.