Best Buy Co. Inc. shares fell 29 percent on Thursday after the world's largest consumer electronics chain reported a drop in holiday sales despite offering deep discounts.

The retailer also forecast a bigger-than-expected decline in operating margins for the quarter covering the biggest selling season of the year.

The company cited intense discounting by rivals, tight supplies of phones and high-end tablets, and weak traffic in December for the disappointing report. This was the latest evidence that holiday sales at many chains came at the expense of profit.

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Shares of Best Buy ended down $10.74 at $26.83 on the New York Stock Exchange, after trading as low as $25.78.

The news also dragged down shares of consumer electronics peers such as RadioShack Corp. and Hhgregg Inc.

"It just seems that the promotions did not drive incremental sales, that opening on Thanksgiving just added costs," Janney Capital Markets analyst David Strasser said.

Adding to the pressure on Best Buy, he said, was the "promotional cadence of troubled retailers" like Sears, Toys R Us Inc. and smaller electronics chains.

Best Buy cut prices sharply to thwart competition from Wal-Mart Stores Inc. and other rivals in what turned to be one of the most promotional seasons since the recession.

Chief Financial Officer Sharon McCollam said the company planned to remain price-competitive in January as well.

Best Buy now expects operating margin, excluding items, to be 175 to 185 basis points lower in the fourth quarter ending February 1 than a year earlier. Credit Suisse analyst Gary Balter said that outlook was well below Wall Street expectations.

The discounting, however, boosted Best Buy's market share at a time when overall industry sales fell, Chief Executive Officer Hubert Joly said, citing data from NPD Group.

Best Buy's sales at stores open at least 14 months were down 0.9 percent in the United States and up 0.1 percent internationally in the nine weeks ended January 4. Total revenue fell about 2.6 percent to $11.45 billion.

Declines in sales of digital imaging, movies, MP3 players and other products more than offset strong demand for computers, appliances and gaming devices, the company said.

Best Buy's online segment was a bright spot in the otherwise weak report. Domestic online revenue was $1.32 billion, and comparable online sales rose 23.5 percent.

During the most recent holiday season, Best Buy offered free shipping for online orders of more than $25 and made its website easier to navigate.

The company also shipped directly from more than 400 stores this season to compete better with the likes of Amazon.com Inc. and Wal-Mart. It is now expanding that service to its 1,000 big box stores, Best Buy said on Thursday.

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