Best Buy tanks on warning

Best Buy Co., Inc. (NYSE: BBY) plunged 36 percent after it warned of lower earnings ahead Thursday.

Shares were down 18.63 to 33.750 following the news. The company blamed lowered estimates on a softer economy, which it said has created increased promotional activity which will reduce gross margins and profitability.

Earnings for the third quarter, ending Nov. 25, are now expected to be 27 cents per share, much lower than First Call's expected 44 cents per share.

Fourth quarter earnings, ending March 3, 2001, will be about 90 cents per share, compared to consensus estimates of $1.02.

The company added that store traffic remains strong, and comparable store sales continue on plan at 5 percent.

"We are experiencing lower gross margins as retailers fight to gain market share in a more cautious consumer environment," added CFO Allen Lenzmeier in a statement.

Analyst Peter Caruso at Merrill Lynch downgraded the stock to near-term "accumulate" from near-term "buy." The long-term rating was also cut to "accumulate" from "buy."