You are currently viewing Best Buy profit tops views but shares off

Best Buy profit tops views but shares off

Published on Reuters

MARKET NEWS JUNE 17, 2008 / 9:08 AM

Karen Jacobs

NEW YORK (Reuters) – Consumer electronics retailer Best Buy Co (BBY.N) posted a 7 percent drop in first-quarter profit on Tuesday, but results were better than expected as the company gained market share in televisions, computers and video gaming.

The company backed its previous full-year earnings forecast, but its shares fell 4 percent as economic concerns weighed on retail stocks. The S&P Retail Index .RLX was down 1.3 percent.

“The retail group is down today and it seems to be largely driven by the economic data points,” said Scott Tilghman, an analyst with Soleil Securities. He noted reports on Tuesday showed that U.S. producer prices rose in May while housing starts fell to their lowest level in more than 17 years.

Best Buy executives told a conference call that consumers face continued uncertainty as gasoline and food prices rise but said it was looking to drive sales by meeting their needs.

“Overall we see pretty solid execution,” Tilghman said. “They’ve worked to improve their product selection and product breadth. They’ve expanded their wireless presence.”

Earnings came to $179 million, or 43 cents a share, for the first quarter, ended May 31, down 7 percent from $192 million, or 39 cents a share, a year earlier. Per-share earnings were helped by fewer shares outstanding.

Analysts expected 37 cents a share, according to Reuters Estimates.

Total sales rose 13 percent to about $9 billion, better than the $8.6 billion expected by analysts. Same-store sales, at outlets open at least 14 months, rose 3.7 percent overall. Same-store sales were up 3.5 percent in the United States and 4.7 percent internationally.


Best Buy cited market share gains in TVs, computing, video gaming and cell phones. It also cited some benefit from U.S. government stimulus checks that started reaching consumers in early May.

Gross margin declined to 23.7 percent from 23.9 percent, reflecting stronger sales of products that carry lower margins such as video game hardware.

“Best Buy is taking advantage of the weaker competition by enhancing the education and quality of its sales staff,” said Alan B. Lancz, president of Alan B. Lancz & Associates Inc, a Toledo, Ohio, investment advisory firm that owns Best Buy stock.

By contrast, rival Circuit City Stores Inc (CC.N) came under fire in the past year for letting go more than 3,000 of its most experienced staffers to cut costs.

People walk by a Best Buy store window in New York, June 17, 2008. REUTERS/Shannon Stapleton

Best Buy “is not immune to the economy slowing down but is making all the right moves,” Lancz added.

The retailer backed its previous full-year forecast calling for profit in the range of $3.25 to $3.40 a share. Analysts expected $3.25 a share, according to Reuters Estimates.

The Minneapolis chain faces a slowing spending environment as rising energy costs and the U.S. housing slump pressure consumers, but is faring better than rivals such as Circuit City Stores, which has stumbled in the past year as store changes disrupted business.

Circuit City, which faces a takeover offer from movie-rental company Blockbuster Inc BBI.N, is expected to report a quarterly loss on Thursday.

The electronics retailing industry leader is also stepping up its push into international markets. In May, Best Buy reached a deal to pay $2 billion to create a joint venture with Britain’s Carphone Warehouse Group CPW.L that is expected to start opening Best Buy stores in Europe.

But the company cut its new-store forecast for China for this year. It now expects to open eight to 16 stores under the Five Star name and one to three Best Buy stores in China, down from its previous outlook of 20 to 25 Five Star openings and five to eight Best Buy stores.

Best Buy shares were down $1.83, or 4 percent, to $44.05 in New York Stock Exchange trading, while Circuit City was up 9 cents, or 2.1 percent, to $4.40. Best Buy shares have fallen about 15 percent so far this year, while Circuit City is up 4 percent.

Reporting by Karen Jacobs; Editing by Brian Moss