May 22 (Bloomberg) -- Best Buy Co., the world’s largest consumer-electronics retailer, posted first-quarter profit that topped analysts’ estimates as Chief Executive Officer Hubert Joly continued to trim costs.
Net income rose to $461 million, or $1.31 a share, in the period ended May 3, compared with a loss of $81 million, or 24 cents, a year earlier, the Richfield, Minnesota-based company said today in a statement. Excluding a one-time tax benefit and other items, profit was 33 cents a share. Analysts projected profit of 19 cents a share, the average of 22 estimates.
Joly has stabilized Best Buy by reducing expenses and renovating stores to include new spaces for vendors such as Samsung Electronics Co. Still, results have been choppy, including a sales decline during the holiday quarter that’s sent the stock down by about a third since mid-January. Joly said today that the company cut $95 million more in annual costs in the quarter.
Profit topping expectations was a surprise, especially because sales declined more than expected and gross margin narrowed, Michael Pachter, an analyst with Wedbush Securities in Los Angeles, said in an interview. That’s probably led to some covering by short sellers, which has helped lift the shares, he said.
Best Buy rose 3.4 percent to $26.22 at the close in New York. The shares, which more than tripled in 2013 after Joly slowed sales declines and showed he could reduce spending, have dropped 34 percent this year.
“This is cosmetically a good quarter for earnings per share,” but not a good one for everything else, said Pachter, who rates the shares underperform. The company has done a good job cutting costs, but it’s running out of places to trim and now needs reverse revenue declines, he said.
Best Buy’s sales trailed analysts’ estimates amid soft demand for mobile phones and tablets, a trend the retailer expects to continue for the next several months.
Revenue declined 3.3 percent to $9.04 billion in the quarter. That marked the ninth straight quarterly drop and trailed analysts’ $9.22 billion average estimate.
“As we look forward to the second and third quarters, we are expecting to see ongoing industrywide sales declines in many of the consumer electronics categories in which we compete,” Chief Financial Officer Sharon McCollam said in the statement. As a result, Best Buy’s same-store sales will fall at a low single-digit percentage rate, she said.
Same-store sales, a key measure of a retailer’s performance because new and closed stores are excluded, fell 1.9 percent in the quarter. Analysts projected a drop of 0.9 percent, according to Consensus Metrix.
The company blamed part of its inability to revive sales on a lack of innovation in the electronics industry, much like it did in the fourth quarter. That’s led to consumers waiting to make purchases until major new products are released, it said. Joly said in an interview that new items in categories such as ultra high-definition televisions, gaming products and devices from Apple Inc. should turn the tide.
“There’s a number of areas where there is excitement on the horizon,” Joly said. That will help the company shift from a phase of cutting costs and stabilization to growth, he said.
Joly has set a goal of trimming $1 billion in annual expenses, up from an earlier target of $725 million, by improving the supply chain and reducing the number of products that get returned or damaged. Best Buy, which has been closing some stores in Canada, brought its annualized total of cost cuts to $860 million after the reductions last quarter.
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