Best Buy reports 3Q profit of $54 million

Best Buy reported net income of $54 million for its most recent quarter, reversing a loss of $10 million a year earlier.

The company's sales were basically flat at $9.4 billion, but comparable store sales increased slightly, ending a streak quarterly declines that spanned three full years.

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However, the consumer electronics giant also warned that the crucial holiday season could be brutally tough as retailers battle each other on price.

That helped knock about 11 percent off the company's stock price, which closed at $38.78 a share.

The holiday season could seriously set back Best Buy's drive to regain the sales and profits of its glory days. Best Buy Chief Financial Officer Sharon McCollam told analysts today that the company will sacrifice profits to keep prices competitive with rivals who are offering mark-downs, known in the industry as promotions.

"We know that we will be facing an increasingly promotional environment," she said. "We are committed to being competitive on price. If our competition is, in fact, more promotional in the fourth quarter, we will be too."

Just today, Walmart vowed it will match select Black Friday offers from Target, Toys R' Us and Best Buy --- and do that a week before those rivals plan to put the items on sale. Walmart officials say Black Friday is the retail Super Bowl and Walmart plans to win by delivering low prices.

But the retailers' war is the consumer's victory.

"It's great because all these guys are battling to the death to capture wallet share," said Michael Pachter, an analyst with Wedbush Securities. "So, it's good for all of us because we're going to be guaranteed to get great prices."

Such battles can prove crippling or fatal for some retailers.

That explains Pachter's advice for consumers who plan to shop at Best Buy.

"Walk into a Best Buy, either armed with a print-out from the Internet for whatever you're looking for so you know what the competing price is," he said. "Or have your smart phone ready to price compare to get that price match from Best Buy. Because they'll give it to you."

Best Buy officials say the company will match key competitors' prices on identical items. Target has a similar policy. Walmart matches advertised prices.

Edward Jones retail analyst Brian Yarbrough said layoffs, store closings and other expense reductions have given Best Buy more room to maneuver financially and reduce or match prices where necessary. But he said the cost-cutting can't go on forever.

"It's a delicate proposition," he said. "They have to be able to lower prices to a level where they can keep good profitability but still drive traffic, and I think that's still the dynamic they're working on right now."

So far, Best Buy's moves haven't done much to restore revenue to the heights of years past. Pachter said that indicates rivals are taking business away from Best Buy.

Wall Street analysts expect a multi-billion dollar jump in holiday sales for Amazon.com, and Pachter said that will likely come at Best Buy's expense.

"If Amazon hits consensus numbers, they're taking share in products sales from somebody -- $2.9 billion," Pachter said. "Where's that coming from? And the answer is some of it is coming from Best Buy."

Investors have signaled that they think Best Buy is on the road to recovery. The company's stock has more than tripled in the past year. But retail consultant Howard Davidowitz said Wall Street has been overly optimistic about Best Buy.

"The stock analysts had this company rocking and rolling on a stable path to the moon," he said. "They're far from that."

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