Best Buy’s sales have stumbled again. Here’s why.

Best Buy announced its third straight quarter of weaker-than-expected revenue and forecast comparable store sales will keep falling into the crucial holiday quarter. (Reuters)

Big-box electronics giant Best Buy reported sagging second-quarter sales Tuesday amid increasingly intense competition from rival retailers.

The company’s comparable sales dipped 2 percent in the U.S., though it still managed to post $146 million in profit, largely thanks to a long-term cost-cutting program. But with few new electronics products to capture consumers’ attention, the rest of 2014 isn’t looking any sunnier.

Chief financial officer Sharon McCollam said in a conference call with investors that she expects to see comparable sales decline “in the low single digits” in both the third and fourth quarters, including the crucial holiday shopping season.

Best Buy has in recent years become emblematic of the broad challenges facing traditional retailers. At a time when shoppers are spending more and more dollars online, Best Buy has found it increasingly difficult to wring money out of its 1,400 stores, which are especially costly due to their large footprints.  Meanwhile, the Web has created a transparency around pricing and promotions that has forced Best Buy and many retailers to adopt low prices, and in doing so, hurt their profit margins.

Best Buy executives emphasized on the call with investors the extent to which a lack of new gadgets–mobile phones, in particular–has created softness in its critical mobile phone category. It is widely rumored Apple will unveil the iPhone 6 in September, so it is possible that could give the ailing retailer a boost this quarter.

One bright spot for Best Buy is the progress it has made in online sales, which were up 22 percent this quarter, compared to a 10.5 percent increase in the same quarter last year.  The company says more than half of that growth has come from its ship-from-store capability, which it rolled out at all of its stores in January.

Best Buy also says it has gotten a lift from a massive effort to more effectively manage its inventory to net more sales both in stores and online. For example, when a store clerk is working with a customer in a brick-and-mortar store, that clerk could previously only search for a given product in that particular store or in distribution centers. Now, that clerk also can search for that product in any store in the United States, which increases the odds of finding what the consumer is looking for. McCollam said that this will likely give the company a boost in converting in-store sales, because consumers say the top reason they don’t buy in the store is because the product is not in stock at that time.

“What they are doing is creating a nicely integrated in-store and online sales model that historically has been pretty disjointed and now operates in a much more seamless fashion,” said Scott Tilghman, a retail analyst at B. Riley & Co.

Looking ahead to the holiday shopping season, Best Buy executives said they expect it will once again be a “highly promotional” environment, meaning that retailers will be relying heavily on discounting to get consumers to open their wallets. Best Buy intends to be among the stores offering those enticing promotions, but says it is positioned to do it with greater effectiveness this year than last year.

Last year, “we did not have the capabilities, pricing capabilities, promotional tracking capabilities, that prepared us well for this kind of environment,” McCollam told investors.

The company also says it has fine-tuned its targeted e-mail campaigns and is experimenting with personalized promotions, both of which could help it dole out promotions more effectively this holiday season.

Since chief executive Hubert Joly joined Best Buy in 2012, he has undertaken a multi-pronged effort to streamline the companies costs.  In the second quarter, the company said cost reductions totaled $40 million.

“That’s what really drove the upside on the bottom line, an overall better cost structure,” Tilghman said.

Best Buy’s total revenue fell to $8.89 billion in the second quarter, slightly below the $8.99 billion analysts had predicted, according to a survey by Thomson Reuters.  In delivering earnings per share of 44 cents, the company exceeded analysts’ expectations of 33 cents per share.

Sarah Halzack is The Washington Post's national retail reporter. She has previously covered the local job market and the business of talent and hiring. She has also served as a Web producer for business and economics news.
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