* U.S. holiday season sales flat; analysts expected decline
* 2013 free cash flow expected to be well below earlier view
* Shares up 11.9 percent (Adds background)
By Jessica Wohl
Jan 11 (Reuters) - Best Buy Co Inc on Friday showed the first concrete signs of a turnaround in its U.S. stores, with flat same-store sales during the key holiday season, helped by sales of tablets and mobile phones and improvement in its online business.
The results surprised analysts, who had expected a decline, and Best Buy shares rose 11.9 percent to $13.66 in afternoon trading.
Best Buy, which is restructuring and faces a looming buyout proposal by founder and former chairman Richard Schulze, saw total revenue slip 0.4 percent to $12.8 billion in the nine weeks ended Jan. 5. Sales at stores open at least 14 months declined 1.4 percent, versus a 0.4 percent decline in the 2011 holiday period.
The holiday was the first under new CEO Hubert Joly and the company has taken several steps to try to stabilize sales, including trying to improve its online business, matching competitors' online prices for some items during the 2012 holiday shopping season and giving additional training to workers at its stores.
U.S. online sales rose 10 percent to $1.1 billion.
Same-store sales were flat in the United States and fell 6.4 percent internationally on declines in Canada and China.
The flat U.S. same-store sales performance in the interim report was much better than decline of 2.5 percent expected by Janney analyst David Strasser, but he said that the international decline was steeper than the 4.5 percent decline he had anticipated.
Best Buy is expected to report full fourth-quarter results on Feb. 28.
"The company likely gained market share," Strasser said in a note to clients. "These results should put a long awaited floor on the stock and give potential buyers incremental confidence in the structural strengths."
Best Buy appeared to avoid the missteps that plagued recent holiday seasons. In 2010, it made a bad bet on pricier 3-D televisions that customers did not embrace and in 2011 it struggled to keep up with increased online demand.
Still, some were concerned about Best Buy reducing its free cash flow guidance for the second time in less than two months.
"We believe Best Buy's revised free cash flow forecast will make it even more difficult for founder and former Chairman Richard Schulze to line up the necessary financing to take the company private," said BB&T analyst Anthony Chukumba.
The company now expects free cash flow of about $500 million for the year ending on Feb. 2. I n November, it had lowered its forecast to a range of $850 million to $1.05 billion, down from a range of $1.25 billion to $1.5 billion provided in August.
While comparable-store sales, gross margin, earnings and inventory levels were in line with the company's expectations, Best Buy now expects fiscal 2013 accounts payable as a percentage of inventories to be lower than those of the previous year. It previously said they would be consistent with those of the prior year.
Best Buy said it had received inventory earlier than expected and therefore had to make payments earlier. T h anksgiving fell on Nov. 22 in 2012, two days earlier than in 2011.
It also saw a shift in sales mix to products that sell more quickly and carry shorter payment terms, such as mobile phones, tablets and e-readers.
The company said that its overall vendor payment terms were consistent with the prior year.
FIRST JOLY HOLIDAY
Best Buy suspended profit forecasts and share buybacks for the rest of the year last August to give its newly named Chief Executive Hubert Joly time to construct his own turnaround plan.
The company's financial leadership was also undergoing a transformation during the holiday season. In October, Best Buy announced that Chief Financial Officer Jim Muehlbauer was planning to leave the chain. Sharon McCollam, the former CFO of Williams-Sonoma Inc, came out of retirement to take over as Best Buy's CFO as of Dec. 10.
In its fourth holiday season after the bankruptcy of arch-rival Circuit City, Best Buy faced cutthroat competition from the likes of Wal-Mart Stores Inc and Amazon.com Inc .
Best Buy said same-store sales had risen in the mobile phone, tablet/e-reader and appliance categories, but declined in entertainment, televisions and computing.
Shares of Best Buy rose as high as $13.95 on Friday, their highest level since Dec. 13. On that date, the shares soared to $14.48 after the Minneapolis Star Tribune reported that Schulze was expected to make a fully financed offer to buy the company by the end of that week. (Reporting by Jessica Wohl in Chicago; Additional reporting by Dhanya Skariachan; Editing by Lisa Von Ahn, Nick Zieminski)