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Best Buy surprises with weak holiday sales, bleak forecast

By Richa Naidu

By Richa Naidu

(Reuters) - Best Buy Co Inc <BBY.N> reported an unexpected decline in same-store sales for the holiday quarter and warned of another surprise drop this quarter, highlighting electronic retailers' ongoing struggles with competition from online stores.

Best Buy, the No.1 U.S. electronics retailer, blamed lackluster demand for tablets, wearable devices and mobile phones, the markets for which are highly saturated.

"We don't expect significant growth in (mobile phones) from a market standpoint" Chief Executive Hubert Joly said on an analyst call on Wednesday, adding that buying a phone at any retailer was a "painful" experience.

Best Buy also cited weak sales of gaming consoles, something that also weighed on video game retailer GameStop Corp <GME.N>, whose results were hit by players downloading games instead of buying them in stores.

U.S. brick-and-mortar retailers are under pressure from slow economic growth as well as competition from the likes of Amazon <AMZN.O>. Underscoring the pain, electronics retailer hhgregg Inc <HGGG.PK> is reportedly expected to file for bankruptcy this month.

Joly said, without naming the company, that the potential bankruptcy would free up $1 billion in revenue to be shared across the industry, although this would not be "transformative" for Best Buy.

The company shares were down 4.5 percent on Wednesday, nearly identical to their decline a day earlier, when retailers across the board fell in sympathy with Target Corp <TGT.N> after it gave a dismal full-year forecast.

"We think lackluster mobile, some product outages, and worse gaming (in a quarter that matters) are the forces at work -- not a sudden shift to a less relevant BBY," Consumer Edge Research retail analyst David Schick.

SALES HIT

Best Buy kept a tight lid on costs in the fourth quarter, which helped its net income increase 27 percent and its adjusted earnings of $1.95 per share beat Wall Street estimates by 28 cents.

However, sales at the company's stores open for more than a year fell 0.7 percent in the fourth quarter, widely missing the increase of 0.5 percent analysts polled by research firm Consensus Metrix were expecting.

Best Buy said it expects sales at its established stores to drop 1-2 percent in the current quarter. Analysts were expecting an increase of 0.7 percent, according to Consensus Metrix.

The company's revenue fell to $13.48 billion from $13.62 billion in the quarter ended Jan. 28, missing analysts' estimate of $13.62 billion, according to Thomson Reuters I/B/E/S.

Joly said the unavailability of some products could have cost Best Buy about $200 million in sales, while Samsung Electronics' <005930.KS> Galaxy Note 7 smartphone recall took an identical toll.

But, with fewer planned cost cuts and innovative new electronics on the horizon, analysts have voiced concerns that 2018 could be a tough year for Best Buy, which has relied on buybacks to drive earnings per share growth.

Best Buy on Wednesday accelerated its share buyback plan to $3 billion over two years from $1 billion over two, and also hiked its quarterly dividend.

(Reporting by Richa Naidu in Bengaluru; Editing by Savio D'Souza)