February 27, 2019 / 12:31 PM / 5 months ago

Best Buy shares surge 16 percent on upbeat profit view, robust holiday quarter

(Reuters) - Best Buy Co Inc shares surged 16 percent on Wednesday after it gave an upbeat profit forecast for the year and reported better-than-expected holiday-quarter sales.

The company, which cited the frenzy for battle royale game “Fortnite” for a boost in sales of gaming gear, also announced an 11 percent boost to its quarterly dividend and a plan to buy back $3 billion of stock.

Best Buy’s report comes after a largely disappointing holiday season for retailers, which have struggled to compete with online sellers such as Amazon.com Inc.

Best Buy has managed to ward off pressure from Amazon by focusing on customer services that has helped drive both store and online sales.

Investments in its online business and expansion of services that encourage customers to set up smart homes and provide advice on purchase of televisions and appliances have resonated with consumers and boosted sales.

A $199-per-year “Total Tech Support” program launched in May, which includes unlimited support online and in stores, saw 1 million members sign up by the end of the year, the company said.

“We continued to drive efficiencies and reduced cost in order to find investments and offset pressure,” Chief Executive Officer Hubert Joly said on a post-earnings call.

During fiscal 2019, the company achieved $255 million in cost reductions, adding to its fiscal 2021 goal of $600 million in savings.

“The key is that Best Buy has matched its operating expenses with its revenues, has focused on share repurchases, and is managing to grow same-store sales through increases in appliance sales and the offering of value added services,” Wedbush Securities analyst Michael Pachter said.

The company also benefited from the bankruptcy of Sears Holdings Corp and J.C. Penney Co Inc’s exit from the appliance business.

Best Buy’s domestic online revenue surged 9.3 percent to $2.96 billion in the fourth quarter on a comparable basis.

Domestic comparable sales rose by a better-than-expected 3 percent in the three months ended Feb. 2, with growth across wearables, appliances, smart home and gaming, being partially offset by a decline in sales of mobile phones.

The sign of a Best Buy store in Pasadena, California U.S., February 28, 2017. REUTERS/Mario Anzuoni

Best Buy forecast fiscal 2020 adjusted profit of $5.45 to $5.65 per share, the mid-point of which was above analysts’ expectations of $5.49.

Excluding items, it earned $2.72 per share, while analysts expected $2.57.

Revenue fell 3.7 percent to $14.80 billion, as the year-ago quarter had an extra week, but still came above expectations of $14.70 billion.

Reporting by Aishwarya Venugopal in Bengaluru; Editing by Shounak Dasgupta and Anil D'Silva

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