Best Buy Co. Inc. on Tuesday reported strong third-quarter earnings and boosted its full-year guidance, heading into the heart of the holiday shopping season.
The company's shares got off to a rocky start, but rebounded by midday. Despite near-record sales gains, shares of many retailers took a hit, including those at Target and Kohl's, as investors worried about potential erosions in profits over free-shipping deals and other investments to speed up delivery and streamline the shopping experience online and in-stores.
Stocks across the market were down, led by technology companies.
At Best Buy, same-store sales were up 4.3 percent for the third quarter, higher than what analysts had forecast. But the growth was slower than previous quarters.
Strong sales of mobile phones, gaming and appliances helped drive a quarter in which profits soared 16 percent.
"We are energized by our continued momentum," said CEO Hubert Joly.
He said the company is ready for the holiday season, which officially kicks off this week although promotions and discounts have been going on for a few weeks.
With consumer confidence at a point not seen in decades, the Richfield-based electronics chain increased its guidance. It now expects comparable sales to increase 4 to 5 percent for the year, leading to revenue between $42.5 billion and $42.9 billion. Profits are forecast to rise 15 to 17 percent.
Online sales for the third quarter increased 12.6 percent to $1.21 billion, contributing to overall revenue of $9.6 billion, up 3 percent over the same period last year.
The quarter also saw the $792 million acquisition of senior technology services provide GreatCall.
Net income was up 16 percent $277 million, or 99 cents a share.
That beat analysts' estimates for both revenue and profits.
Best Buy is the lone survivor as a major purveyor of consumer electronics, which is one of the strongest categories of holiday sales. It faces competition from Amazon, Walmart, Target and other retailers who stock headphones, TVs and games.
Computers and mobile phones made up about 47 percent of sales during the quarter.
Operating profit declined slightly due to higher transportation and supply chain costs, an issue affecting all retailers as they compete over free shipping deals and faster turnaround time.
Analysts predict consumers won't shy away from making big-ticket purchases, which Best Buy sees as playing to its strengths. The company has seen increasing growth in services, including a free in-home consultation to assess consumers' increasingly wired world, as well as a $199 annual service that provides unlimited tech help from the company's Geek Squad staff.
The November-December holiday season has accounted for a third of Best Buy's yearly sales in the past. It stands to gain sales in high-margin appliances as Sears closes stores, and it is stocking more traditional toys — including Barbies and stuffed animals — hoping to carve a portion of the market since Toys "R" Us liquidated.