Best Buy Sales Miss Expectations

Best Buy Co. Inc. (BBY) said Thursday strong sales of DVD movies, CDs and digital TVs boosted quarterly same-store sales, but they missed Wall Street's expectations and the stock fell more than 2 percent.

The No. 1 U.S. electronics retailer said sales at stores open at least 14 months grew 8.3 percent in the fiscal first-quarter ended May 29, but its growth rate hit the middle of an internal forecast of a 7 percent to 9 percent increase.

Stacey Widlitz, an analyst at Fulcrum Global Partners LLC (search), said investors had expected Best Buy to exceed its same-store sales growth target because of continuing market share gains.

Alan Rifkin at Lehman Brothers (search) said in a research note some investors may have been looking for Best Buy to raise its quarterly profit outlook as "the bar is always set high" for the company.

Instead, Best Buy forecast a quarterly profit at "midpoint" of an earlier estimate of 30 cents to 35 cents a share.

"This is one of the strongest retailers out there. The only issue is that they've been beating expectations so consistently that investors are trained to look for upside," said Widlitz, who rates Best Buy stock a "buy" and does not own it.

David Schick, an analyst at Legg Mason, who has a "buy" rating, said in a research note Best Buy operating costs could be rising faster than sales, possibly causing the chain to be guarded about its outlook. He cut his quarterly profit per share estimate to 34 cents from 35 cents.

According to Reuters Estimates, analysts expect the chain to report a 33 cents a share profit for the fiscal first-quarter versus a year-ago profit of 21 cents a share.

Best Buy, whose market share gains have put rival Circuit City Stores Inc. (CC) on the defensive, is undergoing a costly experimental make-over that would see it wiring up homes and selling customized products to outdo rivals like Wal-Mart Stores Inc. (WMT), whose selling point is price.

Best Buy, estimated to hold a 17.7 percent share of the $100 billion U.S. consumer electronics market, said Memorial Day weekend sales helped offset a slower May, for which analysts estimate same-store sales grew by 5 percent to 7 percent.

The Minneapolis-based chain said after stronger sales in March and April, May sales tapered off as it came up against tougher year-over-year sales growth comparisons.

Best Buy, which operates more than 760 stores in the United States and Canada, said total sales in the recent quarter rose 17 percent to $5.47 billion.

Best Buy shares were off $1.06 at $52.41 after touching an earlier session low of $51.90 on the New York Stock Exchange on Thursday afternoon.

Separately, Ultimate Electronics Inc. grappling with sliding market share and supply glitches, reported its fifth straight quarterly loss Thursday but forecast full-year profit at break-even as it improves customer service and cuts costs.

The Denver-based electronics retailer forecast same-store sales in the fiscal second half edging sightly higher, but competition drove a 6 percent slide in May same-store sales. Its fiscal first-quarter loss swelled to $8.4 million, or 57 cents a share, from a net loss of $1.4 million, or 10 cents a share, a year ago.

Ultimate shares surged 20 percent to $4.16 on Nasdaq, their biggest single-day percentage gain in 19 months. Meanwhile, Circuit City, which reports quarterly sales this Friday, gained 11 cents to $12.37.