Best Buy (BBY) said on Thursday that the recall of Samsung’s flammable Galaxy Note 7 phones would take a big bite out of its holiday season sales.
The electronics retailer, which reported strong third-quarter U.S. sales Thursday that sent its stock up 9% in premarket trading, said the recall would lower fourth-quarter revenue by $200 million, prompting the company to lower its forecast estimate for the holiday season quarter to a range of between 1% up and 1% down. But Best Buy stuck to its profit forecast, soothing investor fears.
Samsung is one of the major vendors that has branded mini-stores within Best Buy locations, part of a strategy that has helped the chain fight back at Amazon.com (AMZN) and stage a comeback in recent years. Other mini-store vendors include Microsoft, Sony, Apple and more recently AT&T and Verizon. Last quarter, Best Buy’s comparable sales in the U.S. rose 1.8%, well above Wall Street expectations for a 1% rise, according to Consensus Metrix.
Earlier this autumn, Samsung said it would discontinue the Galaxy Note 7, a smartphone it released in August to take on Apple’s (AAPL)iPhone 7. After many owners reported that the phone was overheating and in some cases, exploding, Samsung subsequently issued a recall. But when similar reports surfaced with its second batch, Samsung to discontinue the smartphone altogether.
“The Samsung issues will be somewhat of a drag on Q4, however we believe Best Buy will be able to overcome these and have a strong holiday and overall fourth quarter, driven in large part by continuing online acceleration,” Charlie O’Shea, a Moody’s analyst, wrote in a research note. Online sales rose 24% for the third quarter in a row.
In the third quarter, which ran through Oct. 31, Best Buy got a boost from the iPhone 7 along with sales growth in TVs and connected home products, offsetting weakness in gaming.
Best Buy’s third-quarter profit rose 55% to $194 million, up from $125 million a year earlier. Adjusted profit was 62 cents a share, beating Wall Street forecasts for 47 cents and its own forecast of 43 cents to 47 cents. Overall revenue was $8.95 billion, up from $8.82 billion in the same period a year ago.