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Best Buy stung by weaker sales and earnings

Sales and earnings both drop in the third quarter due to sluggish consumer demand and increasing competition, prompting the retailer to lower its forecast for the full year.

Higher competition and lower consumer demand combined to bite into Best Buy's sales and earnings in the third quarter.

For the quarter ended November 27, the electronics retailer yesterday reported earnings of $217 million versus $227 million a year ago, while sales trickled down 1 percent to $11.9 billion from $12 billion last year. Both numbers were lower than analysts had anticipated, according to Bloomberg.

Sales and earnings both fell in Best Buy's third quarter.
Sales and earnings both fell in Best Buy's third quarter. Best Buy

Why the downturn? The quarter was hurt by weaker-than-expected sales of TVs, computers, and entertainment software as Best Buy faces increased competition from online retailers such as Amazon and rival stores such as Wal-Mart and Costo, all of which can offer lower prices. The one bright spot was in the mobile area where demand for smartphones and tablets (i.e, the iPad) helped somewhat to compensate for the poor results elsewhere.

The down quarter prompted Best Buy to lower its earnings-per-share estimate for the full year. For fiscal 2011, the company now expects to earn $3.20 to $3.40 a share, down from its prior forecast of $3.55 to $3.70. News of the poor quarterly results and lower annual forecast sent Best Buy's stock plummeting around 15 percent in trading yesterday.

"I am grateful for the hard work and dedication of our employees in the start of the holiday shopping season," Best Buy CEO Brian Dunn said in a statement. "While sales were lower than we expected during the quarter, I'm pleased with our strong store execution, solid gross margin expansion, and efforts to control costs.