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Best Buy stock has fallen about 6% on the news, while shares of GameStop Corp. (GME | Quote | Chart | News | PowerRating) and hhgregg Inc. (HGG | Quote | Chart | News | PowerRating) have each dropped over 7%.
By 11:00 am Eastern Time, shares of Best Buy were down $1.38 at $22.50 per share, while GameStop stock was down $1.69 at $21.72 and hhgregg shares were down 46 cents at $4.56.
Other stocks within the sector that have moved to the downside include Conn's, Inc. (CONN | Quote | Chart | News | PowerRating), RadioShack Corp. (RSH | Quote | Chart | News | PowerRating) and Rex Stores Corp. (RSC | Quote | Chart | News | PowerRating).
Before the opening bell on Wednesday, Best Buy slashed its 2009 earnings forecast, citing a consumer spending environment that is the most difficult the company has ever seen. The announcement comes just days after rival Circuit City declared bankruptcy.
Best Buy said it now expects fiscal year 2009 earnings in the range of $2.30 to $2.90 per share, down from its previous forecast of $3.25 to $3.40 per share. Analysts were looking for the company to earn $3.02 per share.
The firm's revenue guidance was also cut to $43.7 to $45.5 billion. Previously, the company had estimated revenue to be about $47 billion.
"Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we've ever seen," said Best Buy vice chairman and chief executive officer Brad Anderson. "Best Buy simply can't adjust fast enough to maintain our earnings momentum for this year."
President and chief operating officer Brian Dunn added, "In 42 years of retailing, we've never seen such difficult times for the consumer."
Best Buy reported that its total comparable store sales for October declined by approximately 7.6%. Comparable stores are a key metric for retailing performance, stripping out the impact of new store openings and focusing on the performance at established locations.
The company said that comparable store sales for the four months remaining in fiscal 2009 could decline by 5% to 15%, resulting in an annual comparable store sales decline of 1% to 8%.
"This is the latest example of retail angst at the start of the holiday shopping season," said FTN Financial analyst Chris Low.
In announcing the forecast, Best Buy executives hinted at cost cuts they are making to bolster earnings. The company said it is adjusting planned levels of discretionary spending and inventory for the remainder of the year.
"We're beginning to adjust our cost structure to restore earnings momentum and still gain market share," Anderson said. "We firmly believe that our strategy of customer centricity is of great value in driving our performance versus the industry, and that's the strategy we plan to pursue to continue to strengthen our position in the marketplace."
Monday, Circuit City said it has voluntarily filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code in view of its financial position and deteriorating liquidity position. The company noted that its Canadian operations will also be seeking protection under the Companies' Creditors Arrangement Act in Canada, or CCAA.
However, the troubled electronics chain operator stated that it plans to continue operating as usual without interruption, while its management focuses on developing and executing a comprehensive corporate restructuring plan. The company is under pressure from vendors in view of the anticipated holiday season sales.
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