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Best Buy lowers sales outlook after holiday sales drop

A Best Buy store is seen in Niles, Illinois near Chicago, September 23, 2013. REUTERS/Jim Young

By Ramkumar Iyer and Nandita Bose

(Reuters) - Best Buy Co Inc said it expected its U.S. sales to fall by about 1.5 percent in the current quarter after weak demand for mobile phones during the holiday season, pushing its shares down 6 percent in premarket trading on Thursday.

The largest U.S. consumer electronics retailer's U.S. comparable sales, excluding the impact of installment billing plans, fell 7.2 percent in the mobile phones and computing products category in the nine weeks ended Jan. 2.

The category had accounted for nearly half of Best Buy's U.S. sales in the third quarter.

Consumer demand across retail remained uneven during the holiday season, Chief Executive Hubert Joly said on a conference call.

"Domestic decline (in sales) was primarily driven by the mobile phone category, which was softer than both our expectations and the prior year," he said.

Excluding mobile phones, domestic revenue increased year- over-year, driven by demand for products like smartwatches, fitness trackers, home theaters and appliances, the company said.

Best Buy, which has been facing competition from online retailers such as Amazon.com Inc, had earlier said it expected U.S. revenue to be near flat in the fourth quarter.

Despite a drop in revenue, the company improved its profit margin outlook for the fourth quarter, driven by a better discount strategy and as it sold more higher-priced products, Joly said.

It now expects an operating income rate decline of 10 to 15 basis points versus its previous expectation of a 20 to 35 basis points fall.

"One major takeaway for us is Best Buy's discipline thus far surrounding pricing, as it does not appear the company was chasing low-margin sales," Charlie O'Shea, retail analyst at Moody's, said.

The company said its total comparable sales, excluding the impact of installment billing plans, fell 1.4 percent in the nine weeks ended Jan. 2.

Comparable sales rose 1.8 percent in the corresponding period last year.

Revenue fell 3.6 percent to $10.96 billion.

Best Buy shares were trading at $27.54 before the bell.

(Reporting by Ramkumar Iyer in Bengaluru and Nandita Bose in Chicago; Editing by Kirti Pandey and Will Dunham)