Best Buy Co. Inc. (BBY) Wednesday posted a 65 percent rise in quarterly earnings as sales of high-profit items rose, but its shares fell amid concern about the outlook for the top U.S. electronics retailer.

The company forecast higher earnings for the current quarter and full year, in line with Wall Street estimates, but analysts said the costs of a customer loyalty plan and rising inventories might become a problem.

There were also signs that Best Buy's costly store overhaul program, aimed at selling more customized services such as home installations in order to compete more effectively against discounters such as Wal-Mart Stores Inc (WMT), was not going smoothly.

Colin McGranahan, an analyst at Bernstein & Co. Inc. said the latest quarterly results were in line with expectations but showed Best Buy could be facing some internal pressure on its business. "There is not a lot to make the stock go up here," he said.

Best Buy, whose shares were down 2.5 percent, said profit from continuing operations in the fiscal first quarter ended May 29 rose to $114 million, or 34 cents a share, from $69 million, or 21 cents a share, a year earlier.

Sales increased 17 percent to $5.5 billion.

Chief Financial Officer Darren Jackson said in a statement that Best Buy faces "tougher" year-over-year sales growth comparisons through the rest of the fiscal year. Analysts have said the likelihood of higher interest rates may cool consumer spending.

Even so, Jackson said sales at stores open at least 14 months, or same-store sales, so far in June were consistent with the company's forecast for higher second-quarter profit.

The Minneapolis-based retailer, which operates more than 750 stores in the United States and Canada, forecast second-quarter profit of 47 cents to 52 cents a share, compared with 42 cents a year earlier. Analysts' average forecast is 50 cents.

For the fiscal year ending in February 2005, Best Buy forecast a profit of $2.80 to $2.93 a share, or an increase of 15 percent to 20 percent from the prior year. Analysts' average forecast is $2.88 a share.

Analysts said a rise in costs tied to the customer loyalty plan, which offer discounts and other incentives for future purchases, was likely to weigh on profit in the near term.

McGranahan said a 23 percent increase in inventory at the end of the first quarter, to $2.92 billion, was also a concern and could hurt Best Buy shares.

Analysts said the company's store overhaul program may be encountering problems. Best Buy started by revamping 33 test stores. It said on Wednesday it would overhaul an additional 70 stores instead of the 110 initially planned.

Best Buy shares were down $1.33, or 2.5 percent, at $51.75 on the New York Stock Exchange (search).