Best Buy's 2Q Profit Falls 22%; Misses Views; Shares Down

   DOW JONES NEWSWIRES 
 

Best Buy Inc.'s (BBY) fiscal second-quarter earnings fell a bigger-than-expected 22% as sales continued to fall and the company's international business swung to a loss.

But the consumer-electronics retailer raised its fiscal-year outlook because first-half revenue "modestly exceeded" expectations and customer traffic showed signs of stability.

Best Buy now expects earnings of $2.70 to $3 a share on revenue of $48 billion to $49 billion, with same-store sales off as much as 2%. In March - as the stock market was bottoming - the company predicted earnings of $2.50 to $2.90 a share, revenue of $46.5 million to $48.5 million and a same-store sales decline of up to 5%.

Shares fell 2.5% premarket to $39.41 on the quarterly profit miss. The stock through Monday's close was up 44% this year.

While consumer-electronics demand continues to slide, a Bernstein analyst expected back-to-school personal-computer sales to partly offset the weakness.

Meanwhile, according to Goldman Sachs, the benefits of Circuit City Stores Inc.'s (CCTYQ) demise have been overshadowed by major strategic challenges. Best Buy's sales remain under pressure across many major categories while the company also faces increasing competition from mass-market and online retailers.

For the quarter ended Aug. 29, Best Buy reported a profit of $158 million, or 37 cents a share, down from $202 million, or 48 cents a share, a year earlier.

Revenue increased 12% to $11.02 billion, reflecting the addition of Best Buy Europe's sales and the addition of 170 net new stores in the past year. Same-store sales, or sales at stores open at least 14 months and including Internet sales, fell 3.9%.

Analysts polled by Thomson Reuters were looking for earnings of 42 cents a share on revenue of $10.78 billion.

Gross margin edged up to 24.4% from 24.3%.

In the U.S., revenue was up 2% as the company added a net 104 new stores. Same-store sales fell 3.1% as traffic increased slightly but was more than offset by a reduced average transaction size. Best Buy estimated it gained about 2.7 percentage points of market share as of July 31.

International revenue soared 65%, on the addition of Best Buy Europe and the new stores. However, same-store sales dropped 8.3% on the currency-exchange impacts. The segment posted an operating loss on expenses related to Best Buy Europe.

-By Tess Stynes, Dow Jones Newswires; 212-416-2481; [e-mail]