Best Buy profit drops 15%

Best Buy Co. Inc. is winning over customers left stranded when Circuit City closed, but it is still struggling with sluggish sales as shoppers continue to limit big purchases and Wal-Mart steps up competition.

Best Buy said Tuesday that it gained market share in the first quarter, particularly in TVs, computers and mobile phones, even as its profit fell 15%. The results beat Wall Street expectations, and the nation’s largest consumer electronics seller maintained its annual profit outlook.

“We see continued market share gains, a result of Circuit City’s bankruptcy, but remain concerned by weakness in consumer spending and potential saturation of flat-panel TVs,” Michael Souers, retail analyst at Standard & Poor’s Equity Research, wrote in a report.

The company earned $153 million, or 36 cents a share, in the quarter that ended May 30. That compares with profit of $179 million, or 43 cents, a year earlier, when federal stimulus checks briefly spurred consumer spending.

Revenue rose 12% to $10.1 billion as Minneapolis-based Best Buy opened 185 new stores and gained some former Circuit City Stores Inc. customers. The company said it had gained 2 percentage points of market share for the three months that ended April 30, and the gain accelerated after Richmond, Va.-based Circuit City closed its last outlets across the U.S. on March 8.

Best Buy has about 22% of the market in consumer electronics, while Bentonville, Ark.-based Wal-Mart Stores Inc., the world’s largest retailer, has a 14% stake, according to a Deutsche Bank report.

But the weak economy -- particularly rising unemployment -- has made it harder for Best Buy to take full advantage of the environment as shoppers continue to be frugal. Best Buy also faces increasing pressure from discounters, particularly Wal-Mart, which is aggressively expanding the consumer electronics areas in its 3,600 stores to include higher-end brands such as Sony, Apple and Dell.

Best Buy’s same-store sales fell 6%, and the stronger dollar hurt its overseas results. Same-store sales, or sales at stores open at least a year, are a key measure of a retailer’s health.

Best Buy held to its forecast of annual earnings between $2.50 and $2.90 a share, including restructuring charges. Analysts project $2.79 a share. On Tuesday its shares fell $2.82, or more than 7%, to $35.84.