June 17 (Bloomberg) -- Best Buy Co., the largest U.S. electronics retailer, said first-quarter profit fell 6.8 percent on purchases of less profitable video games and laptop computers.

The retailer reiterated its full-year sales and profit forecasts even after quarterly earnings beat analysts' estimates by 6 cents, sending the shares down 5.3 percent.

``There's been a lot of speculation in the market that Best Buy was going to have a decent report, so I think this first- quarter report was largely priced into the stock,'' Brian Nagel, an analyst with UBS Securities LLC, said in a Bloomberg Television interview.

Retailers are benefiting from tax-rebate checks being sent to more than 130 million U.S. households to stimulate the economy. Sales rose 13 percent, helped by more purchases of big- ticket items, including a ``double-digit'' percentage increase of flat-panel televisions, Best Buy said today in a statement.

The impact of the rebate checks is a bit of a wild card, Chief Executive Officer Brad Anderson said in an interview. ``If I had to guess, I'd say a third of what we're seeing is coming out the rebate checks.''

Margin Declines

Gross margin, or sales left after subtracting the cost of goods sold, fell to 23.7 percent from 23.9 percent as video-game consoles and laptop computers are less profitable than some items and those purchases were ``stronger than anticipated,'' it said.

Best Buy, based in Richfield, Minnesota, declined $2.42 to $43.46 by 4:15 p.m. in New York Stock Exchange composite trading. The shares lost 17 percent this year, while Circuit City gained 2.4 percent.

Revenue for the 12 months ending Feb. 28 will increase to $43 billion to $44 billion, or 9.9 percent at most, from $40 billion in the prior fiscal year, the retailer said. Profit will climb to $3.25 to $3.40 a share in the period from $3.12 a year earlier.

Analysts surveyed by Bloomberg predicted annual earnings of $3.26 and revenue of $44.1 billion on average.

``It is very early in what we still expect to be a volatile year for the consumer,'' Chief Financial Officer Jim Muehlbauer said on a conference call with investors and analysts.

Net income for the period ended May 31 decreased to $179 million, or 43 cents a share, from $192 million, or 39 cents, a year earlier, the retailer said.

Sales Forecast

Revenue increased to $8.99 billion and sales from stores open at least 14 months advanced 3.7 percent, exceeding the estimate of Dan Wewer, a Raymond James & Associates Inc. analyst, for a 1 percent decline. The company predicts a gain of 1 percent to 3 percent at existing locations for the year.

U.S. market share rose 1.5 percentage points in the quarter as shoppers bought televisions, video games and mobile phones, Best Buy said. The addition of computers from Apple Inc. and Dell Inc. contributed to the gain, the company said.

``The reason Best Buy is performing so well in a tough macro environment is that they continue to take market share away from competitors, including Circuit City Stores Inc.,'' said Nagel, who recommends that investors buy the shares and has a target price of $59.

Analysts favor purchasing Best Buy shares over Circuit City, with nine recommending buying Best Buy shares, 10 saying ``hold,'' and two suggesting sell. Eighteen analysts advise holding Circuit City shares, three recommend selling them and two say ``buy.''

`Great Position'

``If you have a long-term outlook, now is a pretty good time to buy,'' Brady Lemos, an analyst with Morningstar Investment Services Inc., said in a Bloomberg Radio interview. ``Competitively speaking, it's in a great position.''

As of May 31, Best Buy ran 949 namesake stores in the U.S. including 26 opened in the quarter. The retailer said its joint venture with London-based Carphone Warehouse Group Plc is set to close June 30. Best Buy will add its first locations in Europe starting next year in the U.K.

International revenue from China and Canada, where it has 51 namesake and 133 Future Shop sites, climbed 26 percent to $1.54 billion.

``They are going all over the world, but looking ahead to the weakness of the consumer, I say `Watch out,''' said Howard Davidowitz, chairman of New York-based retail-consulting firm Davidowitz & Associates Inc., in a Bloomberg Radio interview.

For the quarter, 23 analysts estimated average profit of 37 cents a share. Seventeen projected sales of $8.56 billion.

Best Buy had 68.1 million fewer shares outstanding in the quarter, which caused per-share earnings to increase while net income fell. The retailer bought back $3.5 billion of its shares in the year that ended March 1. It doesn't plan any share buybacks this year.

To contact the reporter on this story: Mark Clothier in Atlanta at mclothier@bloomberg.net

Last Updated: June 17, 2008 16:22 EDT