Best Buy Profit Tops Estimates as New Phones Help U.S. Sales

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Best Buy Co. posted first-quarter profit that topped analysts’ estimates after large-screen televisions and the new iPhone helped boost U.S. sales. The stock rose the most in five months.

Profit in the three months through May 2 was 37 cents a share, excluding some items, Richfield, Minnesota-based Best Buy said in a statement Thursday. Analysts estimated 29 cents.

Chief Executive Officer Hubert Joly is in the third year of a turnaround that’s been uneven. He has pleased investors by cutting costs and divesting foreign units but also disappointed them with lackluster sales growth. While first-quarter revenue fell 0.9 percent to $8.56 billion, it topped analysts’ $8.46 billion average projection. The company also upgraded its view on the U.S. market, where it generates more 90 percent of its sales, saying business is “strengthening.”

“Best Buy is one of the leaders when it comes to transitioning from brick-and-mortar to multi-channel, and its first-quarter performance continues to validate this thesis,” said Charlie O’Shea, an analyst at Moody’s Investors Service in New York. “Best Buy is continuing to grow share in its core segments.”

The retailer’s stock advanced 3.9 percent to $35.11 in New York, the biggest gain since Dec. 17. The shares had dropped 13 percent this year through Wednesday, compared with a 3.3 percent gain for the Standard & Poor’s 500 Index.

U.S. Rising

Sales in Best Buy’s U.S. division rose 1.4 percent to $7.89 billion, aided by new models of Apple Inc.’s iPhone and Samsung Electronics Co.’s Galaxy S6. The gain came as the total U.S. consumer-electronics category shrank 5.3 percent during the quarter, according to researcher NPD. The segment makes up 65 percent of Best Buy’s sales.

“We gained share significantly in a tough environment,” Joly said in an interview.

The company’s outlook for revenue also was higher than analysts projected.

Total revenue may decline by a low single-digit percentage, weighed down by store closings overseas, Chief Financial Officer Sharon McCollam said. That would still beat analysts’ estimates for a drop of 6.9 percent. First-quarter revenue from the international unit slid 22 percent to $668 million as Joly sheds operations abroad.

Store Sales

Best Buy’s comparable-store sales -- a closely watched benchmark -- rose 0.6 percent last quarter. Analysts predicted a drop of 0.4 percent, according to Consensus Metrix. The figure doesn’t include any international revenue because Best Buy is closing 66 stores in Canada and converting others to the Best Buy brand from the Future Shop nameplate.

Those moves continue Joly’s strategy of shrinking the company’s international operations. The retailer had previously sold its China division and a 50 percent stake in British chain Carphone Warehouse. At its peak, Best Buy had more than 4,000 locations globally and now has about 1,600.

The chain’s growth strategy centers on expanding relationships with the top brands in electronics. Last year it partnered with Sony Corp. and Samsung to open in-store showrooms to tout ultra high-definition TVs. The plan came after similar deals with Microsoft Corp. and Apple’s Beats headphones brand.

The investment in television brands paid off last quarter as falling prices for models with ultra-high definition, or what’s often called 4K, increased interest in the segment, Joly said.

“The better customer experience is driving the material market-share gain for us,” Joly said. “We are the destination for this.”

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