Appliance, Smartphone Sales Propel Best Buy to Better-Than-Expected 1Q Profit

MINNEAPOLIS (Minneapolis Star Tribune/TNS) —

Strong sales of appliances and smartphones drove Best Buy Co. to better-than-expected results in its first quarter, offsetting slower sales of computers and tablets.

The electronics retailer’s profit rose against prior-year results when adjusted for one-time costs and benefits. Best Buy, based in suburban Minneapolis, noted strong sales of “iconic phones,” a reference to Apple Inc.’s latest iPhones and Samsung Electronics Co.’s new Galaxy products.

Same-store sales in the U.S. dropped 0.7 percent. The company had forecast flat to a small drop in the low single digits. Adjusted to include the effect of the installment-billing process that Best Buy launched for phones in April last year, its same-store sales rose 0.6 percent.

In a statement, Best Buy CEO Hubert Joly said, “Merchandising, marketing and operational execution were the tactical drivers of our better-than-expected first quarter financial results.”

But he added that strategic changes to merge its store and digital operations “is what has allowed us to consistently outperform the market.”

The company’s net profit was $129 million in the three months ended May 3, down 72 percent from $461 million in the same quarter a year ago, when it experienced a $353 million tax benefit. It took a charge of $191 million in the latest quarter for costs related to store closures and consolidation in Canada.

Adjusted for one-time charges and gains, Best Buy’s profit amounted to 37 cents a share, which was better than the 29 cents analysts had expected and an improvement from 35 cents a share in the year-ago period.

For the second quarter, the company forecast flat to low-single-digit percentage growth in sales.

“We believe 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,” Charlie O’Shea, a Moody’s analyst, said in a research note.

During the latest period, Best Buy began to close 66 stores in Canada that operated under the Future Shop name. When it entered Canada in 2001, it bought that brand and operated stores both as Best Buy and Future Shop. But it decided to consolidate its operations under one name, closing about half of its remaining Future Shop stores and rebranding another 65 as Best Buy stores.

Best Buy plans to invest $160 million to enhance its online capabilities in its Canadian operations over the next few years.

In March, Best Buy also announced a second phase to its Renew Blue cost-cutting program and said it would find another $400 million in savings over the next three years. It shaved $1 billion in expenses in the first phase, which began in 2013.

In trading Thursday, Best Buy shares rose $1.33, or 3.9 percent, to $35.11.

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