Dec. 16 (Bloomberg) -- Best Buy Co., the largest U.S. electronics retailer, will offer voluntary severance packages to almost all its corporate employees and slash capital spending in an effort to cut costs. The shares gained the most in almost eight years.

The workers will be eligible for a program with better benefits than the current severance package, Best Buy said today. If not enough employees participate, some may be fired, it said.

Best Buy reaffirmed its annual profit forecast and said it would cut capital spending by 50 percent next year by opening fewer stores in the U.S., Canada and China. Consumers facing rising job losses and shrinking home values have curtailed purchases, helping push the U.S. into a recession and causing retailers to slash prices to attract holiday shoppers.

“These are very aggressive moves, so they think it’s going to be tough for a while,” Colin McGranahan, an analyst with Sanford C. Bernstein & Co., said in a telephone interview.

Profit for the 12 months through February 2009 will fall to $2.30 to $2.90 a share, excluding some items, the company reiterated. Analysts surveyed by Bloomberg estimated earnings of $2.47. Profit a year earlier was $3.12 a share.

Best Buy rose $4.21, or 18 percent, to $27.68 at 4:01 p.m. in New York Stock Exchange composite trading, the biggest jump since January 2001. The shares have fallen 47 percent this year, compared with a 38 percent drop by the Standard & Poor’s 500 Index.

Third Quarter

Third-quarter net income dropped 77 percent to $52 million, or 13 cents a share, from $228 million, or 53 cents, the Richfield, Minnesota-based company said. Sales advanced 16 percent to $11.5 billion.

Excluding impairment expenses, Best Buy earned 35 cents a share. Twenty-one analysts surveyed by Bloomberg estimated average profit of 24 cents a share.

“We believe the environment for consumer spending is likely to get worse before it gets better,” Chief Executive Officer Brad Anderson, 59, said today on a conference call with analysts. “We anticipate companies will be laying off more employees, which will exacerbate the decline in consumer confidence, uncertainty and weakening demand.”

Sales at stores open at least 14 months fell 5.3 percent, Best Buy said. The retailer gained 1.7 percentage points in market share on sales of computers and televisions.

“It was a very impressive quarter, given the very challenging environment,” said Sanford C. Bernstein’s McGranahan, who recommends holding the shares.

Best Buy has about 165,000 employees. Kelly Groehler, a spokeswoman, didn’t return a call to specify how many workers are eligible for severance.

Customer Service

The staff cuts will damage customer service, Jaison Blair, an analyst with Rochdale Securities Corp., said in an interview.

It’s “an acknowledgement that they’re going to have to cut back their competitive advantage over discount retailers,” Blair said. Blair recommends investors sell the shares.

Circuit City Stores Inc. fired 3,400 of its highest-paid hourly workers in March 2007 and hired new employees for less. The move failed to stem a decline in sales after competition increased from Best Buy, Amazon.com Inc. and Wal-Mart Stores Inc. Circuit City filed for bankruptcy last month after suppliers cut off credit.

To contact the reporter on this story: Kevin Bell in Toronto at kbell2@bloomberg.net; Mark Clothier in Atlanta at mclothier@bloomberg.net

Last Updated: December 16, 2008 16:18 EST