US retailer Best Buy Co reported better-than-expected second-quarter earnings on Tuesday, helped by international sales and demand for computers and video games, and raised its full-year profit forecast, pushing its shares up more than 5 percent.
"The consumer is still holding up," said Joseph Feldman, managing director and senior analyst at Telsey Advisory Group, an independent research firm. "Best Buy executed well and capitalised on the traffic that was in the stores."
Net earnings came to $250 million, or 55 cents a share, for the second quarter ended September 1, up 9 percent from $230 million, or 47 cents a share, a year earlier. Analysts on average had expected a profit of 44 cents a share, according to Reuters Estimates.
Revenue rose 15 percent to $8.75 billion, better than the $8.45 billion analysts had expected. Sales at stores open at least 14 months, or same-store sales, rose 3.6 percent. International revenue rose 54 percent to $1.5 billion. "Today's results point to continued strength in the video and PC categories and an easing in the promotional environment," Sanford Bernstein analyst Colin McGranahan said in a research note.
Same-store sales fell 7.1 percent in the appliance category amid the slower US housing market, Best Buy said. But same-store sales in its services group, tied to computers and TVs, rose 5.3 percent. Minneapolis-based Best Buy and rival Circuit City Stores Inc face challenges as the crisis in the housing market and rising fuel costs pressure consumer spending. But in recent years, Best Buy has boosted staff training and adjusted its product offerings to sell items that it knows consumers want.
Circuit "clearly doesn't execute as well as Best Buy," Feldman said. Circuit City, which has closed stores and cut jobs in recent months in a bid to turn around its business, is expected to report results later this week. At Best Buy, gross margin declined in the second quarter but administrative costs fell from a year earlier as a percentage of sales, reflecting cost controls.
Best Buy said during its conference call forecast a less-aggressive promotional environment heading into the critical second half, when the retailer makes 70 percent of its full-year earnings as the holiday season boosts demand. Last year, prices of advanced televisions and other electronics fell as mass retailers like Wal-Mart Stores Inc offered discounts.
Best Buy also noted a different competitive landscape in the wake of some US store closings this year by retailers CompUSA and Tweeter Home Entertainment Group Inc, which filed for bankruptcy protection and was acquired by another company. "We're pretty optimistic about the holiday as a whole," Best Buy CEO Brad Anderson told Reuters in an interview. "We'd expect even that in a fairly difficult climate that we'll have pretty good results."
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