DVD retailers feel Wall Street's pain

Target, Best Buy among hardest hit stocks this week

By Danny King -- Video Business, 9/17/2008

SEPT. 17 | Shares of many of the largest U.S. DVD and electronics retailers this week fell at least as much as the broader stock market after Wall Street’s shake up from Lehman Bros.’ filing for bankruptcy and the financial conditions that required the federal government to bail out insurance giant American International Group compounded fears that U.S. consumers will further cut back discretionary spending.

Best Buy, the largest U.S. electronics retailer, saw its stock fall 4.7% between end of day Friday and yesterday afternoon, while shares of Blockbuster, the largest U.S. movie-rental chain, fell 7.3% during the last two full trading days. Target, the No. 2 U.S. discount retailer, fell 3.9%, but shares of Wal-Mart, the world’s largest retailer, were little changed.

DVD sellers appeared to do worse than both the New York Stock Exchange and other retailers. The Dow Jones Industrial Average, which on Monday had its largest single-day point drop since the September 2001 terrorist attacks, was down 3.2% this week, while the Standard & Poor’s Retail Index, which includes grocery companies and department stores such as Kroger, Nordstrom, Best Buy, Target and Circuit City, fell 1.7%.

“We’re not expecting the same level of consumer spending in the back half of the year,” Best Buy chief financial officer Jim Muehlbauer said on a conference call with analysts yesterday. The company this week said net income for its most recently completed quarter fell 19% as it spent more on labor and promotions in its attempt to spur sales.

Some DVD retailers also were beset by the effects of Hurricane Ike, which struck Texas and much of the southeastern U.S. starting last weekend. Wal-Mart shut down about 250 stores, but reopened all but 30 as of Tuesday afternoon. Best Buy as of Tuesday morning had nine Texas stores closed while another 14 Texas stores and one Louisiana store had limited hours.

Shares of smaller DVD retailers such as Hastings Entertainment and Trans World Entertainment fared slightly better this week than their larger competitors, as Hastings shares this week fell less than the Nasdaq Composite Index, while Trans World stock rose. Netflix, the largest movie-rental service via mail, had a 3.4% drop this week, worse than the Nasdaq’s 2.4% decline, while shares of Amazon.com, the world’s largest Internet retailer, rose slightly.

The financial markets were shaken this week as 158-year-old Lehman Bros. filed for bankruptcy protection, and Bank of America acquired Merrill Lynch. Additionally, the federal government agreed to an $85 billion loan to bail out AIG, the largest U.S. insurer by assets.