Best Buy Profit Beats Expectations; Xmas to Be 'Competitive'

Best Buy Co. Inc. (BBY), the nation's top electronics retail chain, posted a 21 percent rise in quarterly profit on Wednesday, slightly above expectations, and said the holiday shopping season was even more competitive than last year.

The retailer said demand remained strong for digital televisions, MP3 players, digital cameras, notebook computers and appliances, but consumers appeared to be shopping later this year and it expects its best sales are yet to come.

On the New York Stock Exchange (search), Best Buy shares jumped 5 percent, or $2.85, to $58.89.

It signaled more promotions before Christmas. Analysts said this could mean price cuts, increased advertising, and offers of low-rate financing to shoppers.

"Everyone from Best Buy, to Circuit City (CC) to Target (TGT) and Wal-Mart (WMT) is being very aggressive in terms of price on consumer electronics to get people into stores," said analyst Daryl Boehringer of FTN Midwest Research.

Best Buy said earnings in the fiscal third quarter ended Nov. 27 rose to $148 million, or 45 cents per share, from $122 million, or 37 cents per share, a year earlier. Analysts' average estimate was 44 cents a share, according to Reuters Estimates.

Best Buy reported on Dec. 2 that third-quarter sales jumped 10 percent to $6.65 billion, with sales at stores open at least 14 months rising 3.2 percent.

Boehringer said cost-cutting appeared to be the main driver behind the increase in third-quarter earnings.

"We are still cautious in our outlook. It could be more challenging than expected ahead, and there is a potential for an earnings miss if consumers do not come back," he said.

Minneapolis-based Best Buy expects same-store sales to rise 3 percent to 5 percent in December and for the fourth quarter.

It forecast earnings of $1.56 to $1.66 a share for the fourth quarter, and $2.80 to $2.90 for the fiscal year, which ends Feb. 26, which met analysts' expectations.

Analysts' average estimates are $1.62 per share for the fourth quarter and $2.93 for the year, according to Reuters Estimates. Best Buy's full-year forecast includes a charge of 7 cents a share related to litigation and asset impairments.

Best Buy said its full-year forecast assumes the opening of about 77 new stores, and a rise in same-store sales of between 4 percent and 5 percent.

The company is in the process of revamping some of its electronics superstores to offer more customized services, to help differentiate itself from discounters like Wal-Mart.

It said it believes it increased its market share in the third quarter. It has been stealing ground from its closest competitor, Circuit City Stores Inc. (CC), which this month posted a 4.3 percent drop in third-quarter same-store sales.