Best Buy net falls less than forecast

Best Buy Co. said its fiscal first-quarter profit dropped 7%, but what its management didn’t say seemed to bother Wall Street more.

Executives at the nation’s largest consumer electronics retailer did not predict a larger-than-expected full-year profit or a turnaround in the economy. They did not forecast a big boost from the economic stimulus checks that went out just before the end of the quarter. Best Buy shares dropped 5%.

Despite the net profit drop, there were other first-quarter results for Wall Street to cheer about. Operating profit rose 4%, and revenue climbed 13% as shoppers bought higher-priced items such as flat-panel TVs, video gaming consoles, notebook computers and GPS devices. Earnings per share were better than analysts had expected.

Also, sales rose 3.7% at stores open at least 14 months, a key measure of retail health. The company said the gain “accelerated in the second half of the quarter and remains solid thus far in early fiscal June.”

That was around the time of two developments aimed at stimulating the economy -- low interest rates and government stimulus checks, which people began receiving in May, just before Best Buy’s first quarter ended May 31. The checks put money in shopper’s pockets, and low interest rates made it easier for Best Buy to offer low-rate financing.

“We believe what resulted were higher sales, market share gains and some consumers literally adding items to their shopping cart so they would hit the $999 minimum purchase” to qualify for the financing, said Mike Vitelli, Best Buy’s executive vice president for customer operating groups.

Quarterly net income fell to $179 million, or 43 cents a share, from $192 million, or 39 cents, a year earlier. Analysts had expected profit of 37 cents, according to Thomson Financial.

Earnings per share rose because the smaller profit was spread over fewer shares after share buybacks.

Chief Executive Brad Anderson said net profit dropped because of smaller investment returns as the retailer spent some of its cash on share buybacks instead of keeping it invested.

Anderson said that perhaps a third of Best Buy’s sales gain late in the quarter came from the stimulus checks, adding, “but that’s an informed guess.”

Best Buy said revenue jumped 13% to $8.99 billion. Analysts had expected $8.57 billion.

For fiscal 2009, the company expects adjusted profit of $3.25 to $3.40 a share and revenue of $43 billion to $44 billion. Analysts had been predicting profit of $3.26 a share and revenue of $43.9 billion. The company expects comparable-store sales for the year to grow 1% to 3%.

Anderson said Best Buy left its guidance for the year intact despite the better-than-expected first quarter because there was no sign of improvement in things such as food prices, fuel prices and unemployment.

Best Buy shares dropped $2.42, or 5.3%, to close at $43.46.