Best Buy annual profits smaller than expected

MINNEAPOLIS (AP) — Best Buy said its annual profit would be smaller than expected, hurt by a slowing economy as shoppers held back on TVs, digital music players and cameras.

But the nation’s largest consumer electronics retailer bet on a rebound by saying it will keep investing in new stores, including as many as 25 in China. That’s a move that could widen its lead over rival Circuit City, or hurt it if the slowdown persists. Its shares fell $1.15, or 2.5 percent, to $44.62 in trading Friday.

Best Buy said comparable-store sales rose 1.5 percent in December, a month when many other retailers saw declines. But sales fell off after Christmas. Best Buy said fewer customers came into its stores in January, and fourth-quarter sales (which includes December through February) will be lower in home theater, digital music players and cameras, and video games. It said it was selling more notebook computers than expected.

Richfield-based Best Buy Co. Inc. now expects earnings to be $3.05 to $3.10 per share for the full year, down from previous guidance of $3.10 to $3.20 per share. And it predicted revenue of nearly $40 billion for the year ending March 1. It said comparable-store sales for the year would rise 2.5 percent to 3 percent. Its prior expectation was 4 percent.

Analysts polled by Thomson Financial expected a profit of $3.16 per share on revenue of $40.2 billion.

Yet in an investor note titled “There Will Be Blood,” Credit Suisse analyst Gary Balter wrote that “if the quality and segment leader is struggling, one can only imagine how poorly others in the space are doing, with Circuit City being top of mind. That is very positive for the longer term” for Best Buy.

He also said Best Buy’s increasing international presence will reduce its exposure to a U.S. recession. He noted that projected earnings fell about the same as comparable-store sales, “suggesting limited margin deterioration.”

Despite the slowdown, Best Buy said it will open 130 to 160 stores worldwide during the upcoming fiscal year, in part to grab more market share. The openings will include 20 to 25 new Five Star stores and five to eight new Best Buy stores in China, in addition to the one already open in Shanghai.

Best Buy acquired a controlling stake in China’s Five Star appliance chain in 2006.

“We’re consciously choosing not to pull back on our investments, even in a difficult economy, because we are making the bet that the opportunities are rich, over the longer term,” said vice chairman and CEO Brad Anderson in a statement. He said they’ll prove to be good investments once the U.S. economy regains its momentum.

“These guys are thinking about the next five, 10 years, said RBC Capital Markets analyst Scott Ciccarelli. He said Best Buy has invested through prior downturns, too.

“It would take more than a couple months of a slowdown for them to start to change their overall strategic goals.”

Some analysts saw this as a good time for Best Buy to grab more business from Circuit City Stores Inc., which hasn’t seen a quarterly profit since August 2006 despite strong customer interest in TV upgrades and other gadgets.

“The company plans on maintaining growth through a tough economy, which we believe is a result of the company knowing that it has its big competitor on the rocks, and this is the environment to take market share,” wrote Bank of America analyst David Strasser.