(Bloomberg) — Best Buy Co. shares tumbled after the electronics retailer reported a drop in its gross margin, citing pressure on the broad measure of profitability from deeper discounts and more organized theft.
Gross margin fell 0.1 percentage point to 23.5%, Best Buy said in a statement Tuesday as it reported earnings. That slightly trailed the 23.6% average of analyst estimates compiled by Bloomberg, and the decline in the core U.S. operation was steeper. The company also reported a 10% drop in domestic online revenue as more shoppers returned to stores.
Best Buy is struggling to shore up gross margin after a recent stock surge raised Wall Street’s expectations. While the company beat analyst estimates for third-quarter profit and sales, it said its gross margin got hit by stepped-up promotional activity and a drag tied to its new TotalTech membership program. Another impact came from worsening organized theft at its stores.
“We are seeing more and more particularly organized retail crime,” Chief Executive Officer Corie Barry said on a conference call with analysts. “You can see that pressure in our financials, and more importantly, frankly, you can see that pressure with our associates. It’s traumatizing.”
The shares plunged 15% to $117.50 ahead of regular trading in New York. Best Buy advanced 38% this year through Monday, attaining record levels and outpacing the 28% gain of an S&P 500 index of consumer discretionary companies.
A pullback in Best Buy’s shares in live trading Tuesday would follow a seven-week rally that contributed most of the stock’s year-to-date gain. Declines in gross margin at Walmart Inc. and Target Corp. spurred selloffs in each company’s shares last week.
Best Buy’s adjusted earnings rose to $2.08 a share, compared with the $1.96 average of analyst estimates compiled by Bloomberg. Sales climbed to $11.9 billion. Analysts had predicted $11.7 billion.
(Updates with U.S. e-commerce decline in second paragraph.)
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