Best Buy wins more phone shoppers; tops estimates

By Dhanya Skariachan

NEW YORK (Reuters) – Best Buy’s sales promotions helped it win smartphone shoppers from its online and discount rivals and beat Wall Street estimates in its first quarter, and its shares rose more than 5 percent.

The retailer, seen as a bellwether in consumer electronics, also cheered investors by buying back $505 million worth of shares and backing its profit outlook for the year. It sees sales at the high end of its $51 billion-$52.5 billion view.

The news came just months after the biggest U.S. consumer electronics chain decided to focus more on its mobile phone and online businesses and shrink its big-box format as investors raised concerns about its huge overhead costs and oversized stores at a time when many shoppers buy their gadgets online. [nN14125517]

The results also came the same day that the government said U.S. retail sales fell in May, the first drop in 11 months.

“The topline was not as bad as people expected particularly given the continued weakness in the U.S. macroeconomic environment as well as the supply chain disruptions in Japan from the earthquake,” Anthony Chukumba, an analyst with BB&T Capital Markets, said.

Best Buy’s sales at stores open at least 14 months fell 1.7 percent, while analysts were looking for as much as a 4 percent decline. However, margins were much below analyst estimates.

“This puts us back at the age-old question: Can Best Buy grow gross margin and comps simultaneously? The evidence remains unclear,” JPMorgan analyst Christopher Horvers said.

Analysts said Best Buy discounted more to woo bargain-hungry shoppers from competitors, hurting margins.

“They are fighting for share a little bit harder than they were (six months ago),” RBC Capital Markets analyst Scot Ciccarelli said.

Best Buy, which faces stiff competition from online retailer Inc , discounters such as Wal-Mart Stores Inc and Target Corp , promised to stay competitive heading into the back-to-school season.

“We… know that the customer is stretched thin in the current environment,” Chief Financial Officer Jim Muehlbauer said on a conference call.

For the year, Best Buy continues to see earnings of $3.30 a share to $3.55 a share, excluding items.

Best Buy shares were up 5.4 percent at $30.38 Tuesday afternoon on the New York Stock Exchange.


In the United States, demand was strong for mobile phones, tablets, eReaders, appliances and services, while sales of televisions continued to be weak. Outside its home turf, the retailer saw strong demand in China even as same-store sales fell in Europe and Canada.

“The biggest catalyst of our positive performance (in mobile computing) was the rapid growth in tablets as we successfully kicked off the launch of the iPad 2,” CEO Brian Dunn said, adding, “tablet space is heating up now.”

Best Buy is rolling out a section dedicated to tablets called “Tablet Central” to boost sales of these mobile computing devices further.

From Wal-Mart to OfficeMax , retailers are bullish on tablet demand heading into the second-biggest selling season of the year.

The company said its first-quarter net profit was $136 million, or 35 cents a share, compared with $155 million, or 36 cents a share, a year earlier. Analysts on average were expecting a profit of 33 cents a share, according to Thomson Reuters I/B/E/S.

Sales rose 1.4 percent to $10.94 billion, beating the analysts average estimate of $10.71 billion.

Earlier on Tuesday, Carphone Warehouse , which owns 50 percent of a joint venture with Best Buy in Europe, said it has delayed a decision on the next steps for its loss-making UK consumer electronics megastores business until the autumn, mulling the wisdom of expanding as consumer demand slides.