| NEW YORK
NEW YORK Best Buy Co Inc (BBY.N) beat Wall Street's view for profit and sales in its holiday quarter and forecast stronger-than-expected earnings in the current year as demand for electronics picks up in an improving economy.
The U.S. electronics chain, which gained market share in the first holiday season after the bankruptcy of archrival Circuit City, also announced plans to resume share repurchases and open new stores in both domestic and international markets.
Best Buy shares rose 5 percent and helped boost Wall Street optimism about an economic recovery. The Dow Jones industrial average .DJI and the Standard & Poor's 500 Index .SPX recorded strong gains.
"We are starting a slow, steady climb backs toward where we once were." Best Buy CEO Brian Dunn told Reuters in an interview.
As momentum picks up, consumers are willing to spend on technologies that are no longer just "nice-to-have."
"Trends tell me staying connected (with technology) has become a nonnegotiable for millions of people and that some of the things we offer no longer fall under the category of discretionary purchases," Dunn said on a conference call.
Best Buy's key selling season was helped by demand for notebook computers, mobile phones and flat-screen televisions, and more appetite for such gadgets is expected this year.
"They have almost become a staple," said Timothy Ghriskey, co-founder of investment firm Solaris Group. "The consumer is coming out of hiding here." He said called Best Buy's current-year forecast conservative.
Net profit rose to $779 million, or $1.82 a share, in the fourth quarter, ended February 27, up from $570 million, or $1.35 a share, a year earlier.
Net revenue rose 12 percent to $16.55 billion. Sales at stores operating for at least 14 months increased 7 percent.
Analysts on average were expecting a profit of $1.79 a share on revenue of $16.08 billion, according to Thomson Reuters I/B/E/S.
WINNING OVER SKEPTICS
Best Buy said it expects operating margins to rise this year, with more improvement in the second half, allaying concerns over its aggressive promotional strategy as it tries to fend off rivals Wal-Mart Stores Inc (WMT.N) and Amazon.com Inc (AMZN.O).
"Investors are giving them more benefit of the doubt than they have in the past," Barclays analyst Michael Lasser told Reuters.
For fiscal 2011, Best Buy forecast earnings of $3.45 to $3.60 a share on revenue of $52 billion to $53 billion. Analysts on average were expecting $3.37 a share on revenue of $52.14 billion.
The company sees 2011 same-store sales up 1 percent to 3 percent.
Morningstar analyst R.J. Hottovy said he still had long-term concerns about mass merchant competition and a sales shift to lower-margin items. But he plans to raise his fair value estimate on Best Bay shares by a few dollars, based on the company's current momentum.
Standard & Poor's analyst Michael Souers raised his price target on the shares by $5, to $50.
Best Buy is making a big bet on 3D TVs this year and said customers were showing interest in the technology.
LG Electronics (066570.KS) said on Thursday it aims to sell nearly 1 million 3D televisions this year [ID:nTOE62N0A6], and Wal-Mart also has plans in the works to sell 3D TVs.
But many industry expects don't expect a quick payoff from the technology.
Best Buy's domestic business increased its market share by about 2.6 percentage points in the three months ended January 31 compared with a year earlier.
In the fourth quarter, gross profit margin fell 0.6 percentage point, to 24 percent of revenue, due to sales of lower-margin notebook computers and flat-panel TVs.
The company sees potential to return to annual market share growth 0.8 to 1.0 percentage point going forward.
Best Buy plans to open 50 to 55 large-format stores and 75 to 100 small-format stores, mainly mobile phone shops, in the United States this year. It also plans to open 10 to 15 stores in China.
The company, which has $2.5 billion remaining under its existing share repurchase authorization, said its outlook excluded potential share repurchases.
(Reporting by Dhanya Skariachan, editing by Michele Gershberg, Dave Zimmerman and John Wallace)