The Best of Times for Best Buy?

Shares of the electronics retailer gained Tuesday after it released earnings that beat Wall Street expectations and lifted its 2007 outlook

Led by sales of notebook computers, flat-panel televisions, and video games, Best Buy (null) reported second quarter earnings that beat forecasts and issued a rosy outlook. Its stock got a nice lift on the news.

The Minneapolis-based electronics retailer reported second quarter (ended Sept. 1) earnings per share of $0.55, vs. $0.47 a year ago. Same-store sales rose 3.6%, while total sales jumped 15% from a year ago to $8.75 billion. Analysts surveyed by Thomson Financial had expected second-quarter EPS of 44 cents on sales of $8.48 billion.

Given the better-than-expected results, the company expects to finish in the upper half of new guidance range of $3.00-$3.15 for fiscal year 2008. Analysts were forecasting $3.03 for that number. Best Buy sees same-store sales growth for the fiscal year near the midpoint of its 3-5% range.

"Our optimism is balanced by the fact that approximately 70% of our annual earnings are still ahead of us in a volatile macroeconomic environment," said Darren Jackson, Best Buy's CFO, in a release. "Our market share has never been higher, and we are entering the holiday season with a lot of consumer interest in key categories such as home theater, video gaming, computing and mobile navigation."

Best Buy shares moved up 4.9% to $46.71 in afternoon trading on heavy volume on the New York Stock Exchange. The stock has ranged between $41.85 and $58.49 in the last year.

Analysts were also pleased with Best Buy's results. "We expect continued strength in electronics sales this holiday season and believe BBY shares are sharply undervalued, trading at a p-e-to-growth rate of about 0.9 times," wrote Standard & Poor's equity analyst Michael Souers in a note.

He noted that Best Buy's second quarter revenue growth of 15% exceeded his projection, led by strong gains in home office and entertainment software. "In addition, BBY's accelerated share repurchase plan provided a significant boost to EPS," he said.

In its second quarter release, Best Buy noted that consumers continued to make more purchases online. Total second-quarter online revenue rose more than 20% from a year ago. And international revenue surged 54% from a year ago to $1.5 billion.

While sales of notebook computers, video games, and flat-panel TVs were strong, sales were down for older model TVs, mobile phones, MP3 players, CDs, and appliances,

During its conference call, the company also said it expects a less aggressive promotional environment heading into the second half of the year that includes the critical holiday season. Last year, Wal-Mart (WMT) offered discounts on TVs and other electronics that sent prices lower.

Best Buy also announced that it bought a minority stake in Carphone Warehouse Group Plc (CPW.L), a leading cell phone retailer in Europe, for $183 million. Best Buy and Carphone have a partnership, operating Best Buy Mobile in the U.S. and Geek Squad, Best Buy's technical services unit, in London.

Separately, Apple (AAPL) announced Carphone would sell iPhones in Britain. Apple expects to sell 10 million of the phones in 2008. Shares of Carphone Warehouse climbed 6% in London.

S&P's Souers reiterated his strong buy opinion on Best Buy shares and kept his discounted cash flow-based 12-month target price at $63. He raised his fiscal year 2008 (ending February) and fiscal year 2009 EPS estimates to $3.13 and $3.69, from $3.05 and $3.57, respectively. (S&P, like BusinessWeek, is owned by McGraw-Hill (MHP).)

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