CHICAGO (Reuters) - Best Buy Co Inc, the No. 1 U.S. electronics chain, slashed its fiscal 2009 profit forecast on Wednesday, driven by weak consumer spending heading into the crucial holiday selling season.

Best Buy's announcement comes just two days after smaller electronics retail rival Circuit City Stores Inc filed for Chapter 11 bankruptcy protection.

"Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we've ever seen. Best Buy simply can't adjust fast enough to maintain our earnings momentum for this year," Chief Executive Brad Anderson said in a statement.

The company said it expects to end the third quarter with higher inventory levels, short-term borrowings and accounts payable than previously projected due to the drop in consumer spending.

Shares of Best Buy fell nearly 13 percent in premarket trading.

Resource Library:

"In 42 years of retailing, we've never seen such difficult times for the consumer. People are making dramatic changes in how much they spend, and we're not immune from those forces," said President and Chief Operating Officer Brian Dunn.

The company also faces increased competition from Wal-Mart Stores Inc, which has stepped up its advertising on electronics such as flat-panel televisions as a big part of its holiday push that emphasizes low prices.

With the U.S. economy in what many economists say is a recession, most retailers, whether they sell clothes or higher-end electronics, are seeing sales pressured.

"People selling $30 pairs of jeans are struggling so imagine trying to sell a $3,000 television," said Jon Fisher, portfolio manager at Fifth Third Asset Management.

Best Buy said comparable store sales fell about 7.6 percent in October after falling 1.3 percent in September. It said comparable store sales in November 2008 through February 2009 could decline by 5 percent to 15 percent, leading to an annual comparable store sales decline of 1 percent to 8 percent.

Best Buy forecast fiscal 2009 earnings of about $2.30 to $2.90 per share, down from a prior forecast of $3.25 to $3.40 per share. Analysts, on average, had expected it to earn $3.03 per share, according to Reuters Estimates.

The company earned $3.12 per share in fiscal 2008.

Richard Hastings, Consumer Strategist at Global Hunter Securities LLC, said the warning was a little more drastic than he was expecting.

"Typically consumer electronics would be a positive note during a weaker holiday season and instead consumer electronics will be one of the weaker spots this holiday season and continuing along a much weaker trend next year," Hastings said.

Best Buy now expects annual revenue of $43.7 billion to $45.5 billion, down from a prior forecast of about $47 billion. Analysts, on average, expected revenue of $46.3 billion.

Best Buy said it is working with vendors to adjust its inventory levels and its near-term working capital position and expects year-over-year domestic inventory to be flat by the end of the fiscal year, which ends in February.

"They're not going to lose money next year," said Fisher. "But they, like everyone else, need to tighten down their spending."

Best Buy also said it has a new $150 million committed U.S. credit facility, which expires on December 17. The new facility was undertaken in part because one of the participants in its existing $2.5 billion revolving line of credit went bankrupt, which effectively reduced the amount available to the company. It identified the participant as Lehman Brothers.

Shares of Best Buy fell to $20.80 in premarket trading after closing at $23.88 on Tuesday.

(Reporting by Jessica Wohl, Brad Dorfman and Ben Klayman in Chicago and Nicole Maestri in New York, editing by Dave Zimmerman)

© Thomson Reuters 2008 All rights reserved