The stock price of Best Buy Co., Inc. (NYSE:BBY) plummeted as much as 9% to 39.64 a share after the company reported weak earnings for the third quarter. The electronics retailer reported $0.12 diluted earnings per share on $9.36 billion revenue.

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Best Buy revenue drop caused by store closures

The earnings of the company met the expectations of the analysts at Citi Research Equities of $0.12 per share based on consolidated SSS of 0% and total sales of $9.3 billion. However, it was lower than the $0.13 earnings per share consensus estimate of Wall Street analysts.

During the quarter, Best Buy Co., Inc. (NYSE:BBY) said its domestic revenue increased by 2.3% to $7.85 billion. The company’s same store sales rose 1.7% despite short-term disruptions caused by ongoing rollout of the floor space optimization, retail deployment of Windows Stores, and continued rationalization of non-core businesses. Its domestic online revenue was $499 million.

On the other hand, the international sales of the electronics retailer declined by 11.3% to $1.52 billion. According to the company, the weak financial results was caused by a 6.4% decline in comparable store sales, loss of revenue from 15 large format stores that were closed in Canada and 20 large format stores that were closed in China last year. Foreign currency exchange rate fluctuations also affected its business negatively.

According to Best Buy Co., Inc. (NYSE:BBY), its domestic gross profit rate was 23.6% while its internal gross profit rate was 21.2%.

The company said it eliminated $115 million in annual costs since the second quarter under its Renew Blue Cost Reduction Initiative. Best Buy explained that it was able to achieve the cost reduction due to labor productivity improvements in home installation business, reduced cost structure in loyalty programs, and renegotiation of primary contracts. Best Buy Co., Inc. (NYSE:BBY) said its total eliminated annualized costs were $505 million.

In a statement, Best Buy’s president and CEO, Hubert Joly said, “Our third quarter top-line results make it clear that our focus on delivering our unique customer promises is starting to pay off. It is also clear that our efforts to control costs and to bring greater efficiency to our operations are improving our profitability. While we remain mindful of the fact that we still have a long way to go, we are pleased with the progress of our Renew Blue transformation efforts.”

Best Buy to compete via promotions, expects gross margin hit

Sharon McCollam, EVP, CAO and CFO of Best Buy Co., Inc. (NYSE:BBY) acknowledged the fact that the company is confronted with strong promotional competition, and stated that the company is committed to be competitive on prices. She said, “So if our competition is in fact more promotional in the fourth quarter, we will be too and that will have a negative impact on our gross margin.”

In addition, McCollam said Best Buy stores will be open at 6:00 p.m. on Thanksgiving and will not close until the late evening on Black Friday.

Citi Research Equities analyst, Kate McShane and her colleagues reiterated their Neutral rating for the shares of Best Buy Co., Inc. (NYSE:BBY) due to a number of tailwinds, the rapid appreciation of the stock price YTD (+270%), and the uncertainty of near-term profitability due to temporary disruptions from its initiatives to drive sales and reduce costs.