Shares of Best Buy fell nearly 30 percent on Thursday after the retailer reported poor financial results from the critical holiday shopping season.
Sales at Best Buy stores open for at least 14 months dropped about one percent, compared with the same period a year ago. Company officials blamed the decline on intense price competition, a shortage of some hot products, lower customer traffic and a disappointing mobile phone market.
The news punched a hole in the price of Best Buy's shares, which saw a huge run-up last year as new CEO Hubert Joly moved to shore up confidence in the struggling retailer.
For Best Buy, the big problem was that sales slipped despite price cuts intended to keep the company competitive with rivals such as Amazon, Walmart and Target.
"Best Buy is in a very tough place, because Amazon has lower overhead and so does Walmart," retail consultant Howard Davidowitz said. "Therefore, they can sell the same product cheap and make more money."
Competing with Amazon is particularly tough.
Brian Yarbrough, a retail analyst for Edward Jones, said any retailer trying to compete with Amazon isn't in a fair fight.
"Amazon doesn't care about profits," he said. "All they care about is revenue growth."
Rivals like Walmart and Target are no lightweights either. Yarbrough said both have showed they're willing to accept little or no profit selling consumer electronics products.
"This holiday shopping period, Walmart started offering great deals on electronics the week before Black Friday, calling it their early Black Friday sale," he said. "There's still interest in electronics. It is a traffic driver. When you've got Target and Walmart offering $50 gifts cards on a $500 iPad, they're not making any money on that."
Nor would such a deal conceivably be a money-maker for Best Buy. Its core business is consumers electronics, and the company isn't going make up the sales and profits by hawking clothing, groceries, or house wares.
Best Buy is fighting industry and consumer trends that could lead to its eventual demise, said Michael Pachter, an analyst with Wedbush Securities. He said the company has a quite capable management team dealing with a problem that can't be fixed.
"They're not losing traffic because of anything they're doing wrong," Pachter said. "They're losing traffic because their competitors are doing something right, which is making every product that Best Buy carries available at competitive prices."
To survive long-time, Best Buy will have to close many stores, Pachter said.
"Unless they dramatically change their footprint -- and that means shuttering 20 or 25 percent of their stores -- they go away," he said. "I think they really need to reconsider whether they need all these big stores of not."
CEO Hubert Joly said there were no specific plans to close stores, but added that "we have always said on an ongoing basis that we are looking at the store footprint and we continue to review it."
Best Buy's stock more than doubled last year, as many investors were willing to bet that the retailer was on the way to turning itself around and management's long-term sales and earnings forecast was reasonable.
Morningstar retail analyst R.J. Hottovy said the company's management has done a good job, cutting costs, revving up online sales and making other smart moves. But he said Wall Street just grew too bullish on Best Buy, ignoring critical challenges facing the company.
"That was our view," Hottovy said. "The market had got ahead of itself with the stock in $38 to $40 range. And that something in the $30-range was more accurate."
Best Buy's shares closed at $26.83 cents on Thursday. Still, data from the Bloomberg news service show most analysts still rate the stock a buy now, even after many shareholders saw the value of their holdings shrivel.
Shares of Best Buy sank more than 25 percent after the company said sales declined during the holiday shopping season, which was marked by weak consumer spending and heavy sales promotions by retailers.
The Associated Press contributed to this report.