Best Buy sales, forecast disappoint, shares fall

By Jessica Wohl
CHICAGO (Reuters) - Best Buy Co Inc posted lower first-quarter earnings and weaker-than-expected sales on Tuesday and implied earnings for the rest of the year would be worse than forecast, dragging its shares down more than 7 percent.
The top U.S. specialty consumer electronics retailer said it gained market share after main rival Circuit City closed its doors. Still, fewer customers visited its U.S. stores in the quarter as consumers continue to cut back on discretionary purchases.
"I think consumers are careful. They're being very, very careful," President and CEO-designate Brian Dunn said in an interview.
Best Buy saw demand rise when Circuit City shut down but has also faced increased pressure from Wal-Mart Stores Inc and others adding laptop computers, flat-screen televisions and other products to their stores.
The company's lower profit still topped analysts' expectations. Analysts said they were pleased to see improvements in gross margin and the market share gains, while the sales weakness was a concern, especially since most of the quarter fell after Circuit City's liquidation sales.
Best Buy estimated that as of April 30 its U.S. market share grew by nearly 2 percentage points from a year earlier.
Dunn, who is set to become CEO on June 24, said items such as notebook computers and mobile phones are selling well as consumers look for more ways to stay connected.
Sales of gaming items, digital cameras, appliances and movies fell, however.
"They're definitely sort of playing defense right now, but when the consumer starts to come back they're going to be in a great position," said FTN Equity Capital Markets analyst Anthony Chukumba, who rates the shares "buy."
He said if and when consumers start shopping again, Best Buy could surpass its profit forecast for the year.
PROFIT FALLS
Best Buy said it earned $153 million, or 36 cents per share, in the fiscal first quarter ended on May 30, down from $179 million, or 43 cents per share, a year earlier.
Excluding restructuring charges, Best Buy said adjusted earnings fell to 42 cents per share from 43 cents per share. Analysts had expected Best Buy to earn 34 cents per share on that basis, according to Reuters Estimates.
Despite interest in new products such as Palm Inc's Pre phone, Apple Inc's latest iPhones and the debut of Microsoft Corp's Windows 7 later this year, Best Buy maintained the expectations it issued in March.
"I am pleased with the start we have but we're not going to get the cart ahead of the horse here," Dunn said. Continued...
Source: Reuters