Best Buy posts profit on cost-cutting, tax benefit, but can’t halt sliding sales

NEW YORK, N.Y. – Cost cuts helped consumer electronics retailer Best Buy record a stronger-than-expected profit in the first quarter, but sales continued to be weak as shoppers hold off for new product launches of smartphones and tablets expected in the fall.

Adjusted earnings beat expectations and shares rose more than 5 per cent in morning trading.

But sales fell short of Wall Street estimates. And Best Buy said it expects revenue in stores open at least 14 months, a key retail metric known as same-store sales, will fall in both the second and third quarters.

Best Buy is grappling with a weak consumer electronics industry and increased competition from online stores, notably Amazon.com, and discounters like Wal-Mart. Under CEO Hubert Joly, the company has been trying to turn around results, revamping merchandise, training employees and cutting costs.

ISI analyst Greg Melich said Best Buy’s cost cutting efforts are helping offset weaker sales and costs related to price matching with competitors.

“Progress continues on the cost reduction front, but gross margin dollar declines continue as secular industry pressures persist,” he wrote in a note to investors.

Revenue at stores open at least 14 months fell 1.9 per cent during the three months ended May 4. That is not expected to improve in the next two quarters, said CFO Sharon McCollam in a call with analysts.

“As we look forward to the second and third quarters we are expecting to see ongoing industrywide sales decline in many of the consumer electronics categories in which we compete,” she said. “We are also expecting ongoing softness in the mobile phone category as consumers eagerly await highly anticipated new product launches.”

The electronics seller said its net income was $461 million, or $1.31 per share. That’s a turnaround from a loss of $81 million, or 24 cents per share, a year earlier.

That includes a one-time tax structure change that helped earnings by $1.01 per share.

Adjusted earnings were 33 cents per share. That beat analysts’ average estimate of 19 cents per share, according to FactSet.

Total revenue fell 3 per cent to $9.04 billion from $9.35 billion. Analysts polled by FactSet expected $9.23 billion.

Shares rose $1.29, or 5.1 per cent, to $26.64 morning trading Thursday. The stock had been down about 36 per cent since the beginning of the year.