Best Buy Anticipates Continued Sales Declines -- 2nd Update

By Dow Jones Business News, 
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By Drew FitzGerald and Ben Fox Rubin

Best Buy Co. said it expects electronics sales to continue sagging over the next six months as the industry waits for the next big thing.

The question remains when that hot product will show up, if at all.

Best Buy's warning underscored how little recent new devices from Apple Inc. and Samsung Electronics Co. have done to help the retailers that sell them.

The launch of Apple's newest iPhone models last year didn't significantly improve Best Buy's holiday sales, for instance. The company's sales projection Thursday suggested that Samsung's new flagship phone isn't likely to move the needle this summer, either.

"There's no doubt that after several years of rapid growth, the phone market in the U.S. has entered a level of saturation," Chief Executive Hubert Joly said in an interview. Tablets, too, are selling more slowly after an initial burst of popularity.

Best Buy still posted a $461 million profit in the quarter ended May 3 after the cost of winding down some of its European operations pushed it to an $81 million loss a year earlier. But its revenue fell 3.3% to $9.04 billion, and sales excluding newly opened or closed stores fell 1.9%.

The lack of big new product launches will probably push sales down for the next two quarters, executives said Thursday. That means sales at stores open at least 14 months are likely to decline for the third straight year unless demand rebounds sharply over the coming holiday season.

The company's stock price was up 1% Thursday at $25.60, but it is still down more than 35% this year, making it one of the worst performers among America's biggest companies.

Best Buy has responded by paring back expenses. The company said Thursday it had slashed $860 million of annual expenses since it began its cost-cutting campaign a year-and-a-half ago.

The electronics chain staged a dramatic comeback last year, after its founder and former chairman agreed to back off a proposal to take the chain private. Shares more than tripled as the retailer started cutting costs and refining its online presence.

The first half of 2014, however, has erased much of those gains. Mr. Joly in February expressed caution about the company's sales prospects, citing thin demand and tough competition. The company's chief financial officer at the time warned investors to expect sales to be "slightly negative" for the first half of the year.

Sales could still improve in the coming months if the company does a better job selling home-entertainment systems, executives said. Videogamers could improve its profitability if they start buying new titles on the newest consoles from Microsoft Corp. and Sony Corp. Retailers tend to make more money from games for new hardware than on the machines themselves.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and Ben Fox Rubin at ben.rubin@wsj.com

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  05-22-141256ET
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This article appears in: Technology

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