Best Buy posts higher profit

ATLANTA (Reuters) - Retailer Best Buy Co (BBY.N) reported better-than-expected second-quarter earnings on Tuesday, helped by international sales and demand for computers and video games, and raised its full-year profit forecast, pushing its shares up more than 5 percent.

"The consumer is still holding up," said Joseph Feldman, managing director and senior analyst at Telsey Advisory Group, an independent research firm. "Best Buy executed well and capitalized on the traffic that was in the stores."

Net earnings came to $250 million, or 55 cents a share, for the second quarter ended September 1, up 9 percent from $230 million, or 47 cents a share, a year earlier.

Analysts on average had expected a profit of 44 cents a share, according to Reuters Estimates.

Revenue rose 15 percent to $8.75 billion, better than the $8.45 billion analysts had expected. Sales at stores open at least 14 months, or same-store sales, rose 3.6 percent. International revenue rose 54 percent to $1.5 billion.

"Today's results point to continued strength in the video and PC categories and an easing in the promotional environment," Sanford Bernstein analyst Colin McGranahan said in a research note.

Same-store sales fell 7.1 percent in the appliance category amid the slower U.S. housing market, Best Buy said. But same-store sales in its services group, tied to computers and TVs, rose 5.3 percent.

Minneapolis-based Best Buy and rival Circuit City Stores Inc CC.N face challenges as the crisis in the housing market and rising fuel costs pressure consumer spending. But in recent years, Best Buy has boosted staff training and adjusted its product offerings to sell items that it knows consumers want.

Circuit "clearly doesn't execute as well as Best Buy," Feldman said.

Circuit City, which has closed stores and cut jobs in recent months in a bid to turn around its business, is expected to report results later this week.

At Best Buy, gross margin declined in the second quarter but administrative costs fell from a year earlier as a percentage of sales, reflecting cost controls.

'MORE RATIONAL' PROMOTIONS

Best Buy said during its conference call forecast a less-aggressive promotional environment heading into the critical second half, when the retailer makes 70 percent of its full-year earnings as the holiday season boosts demand.

Last year, prices of advanced televisions and other electronics fell as mass retailers like Wal-Mart Stores Inc (WMT.N) offered discounts.

Best Buy also noted a different competitive landscape in the wake of some U.S. store closings this year by retailers CompUSA and Tweeter Home Entertainment Group Inc, which filed for bankruptcy protection and was acquired by another company.

"We're pretty optimistic about the holiday as a whole," Best Buy CEO Brad Anderson told Reuters in an interview. "We'd expect even that in a fairly difficult climate that we'll have pretty good results."

Anderson said that products expected to be key drivers for the holiday season included games, iPods, notebook computers as well as advanced televisions.

Best Buy estimated full-year earnings at the top half of its forecast range of $3 a share to $3.15 a share, an improvement from its previous outlook of $2.95 to $3.15.

Analysts on average expect a profit of $3.03 a share for the year, according to Reuters Estimates.

Best Buy said same-store sales should rise near the midpoint of its previous forecast range of 3 percent to 5 percent.

The company's shares rose $2.92, or 6.6 percent, to close at $47.46 on the New York Stock Exchange, getting a further boost after the Federal Reserve cut interest rates by a half-percentage point. Circuit City shares edged up 36 cents to $10.42, also on the NYSE.

Best Buy's stock is off about 4 percent this year while Circuit City shares are down about 45 percent.