Shares in Best Buy Co. were up more than 11 percent in late afternoon trading as the electronics retailer’s latest results beat investor expectations.
The Richfield-based company early Tuesday reported net earnings of $266 million for the three months ended Aug. 3, well above the $12 million it earned in the same period a year ago.
Best Buy shares, which have nearly tripled since the start of the year, were trading up $3.48 to $34.21 on the New York Stock Exchange.
Best Buy said its earnings from continuing operations, which excludes one time events, amounted to 32 cents, up from 26 cents a year ago and well above investor expectations of 12 cents.
Revenue was $9.3 billion, down slightly from $9.34 billion in the same period last year. For the latest quarter, Best Buy said comparable store sales, those open at least 14 months, in the U.S. fell 0.4 percent, an improvement from the 1.1 percent decline of the year-earlier period.
In an interview, CEO Hubert Joly said future sales improvements will be “very gradual” as the company continues to redesign its store space to accommodate higher growth merchandise like smartphones, appliances, and tablets. The company has also rolled out store-within-a-store concepts for Samsung and Microsoft products.
In fact, Joly suggested Best Buy’s comp store sales the second quarter would have been slightly positive had it not been for the construction of Samsung and Microsoft stores. Such remodeling projects tends to disrupt customer traffic.
“This is a year of transition,” Joly said.
For investors, the biggest worry has been Best Buy’s profitability. The retailer recently started to match prices of competitors like Amazon and Wal-Mart. But such price investments erode profit margins. The company estimated price matching will continue to pressure profits well into next year.
“We don’t want price to be an obstacle to buying at bestbuy.com and our stores,” Joly said.
Comparable online sales grew 10.5 percent due to greater traffic and higher average order values, the company said. That jump did not include pre-sales of new game systems that will be delivered in future quarters. If it had recognized that revenue in the latest period, Best Buy said online sales would have jumped 16 percent.
To finance the price matching, the company has embarked on ambitious campaign to eventually erase $725 million in costs over the next year or so. Best Buy said it has already reduced annualized costs by $390 million through lowering the costs of goods sold and trimming its corporate headquarters staff.
Joly acknowledged that layoffs are painful in the short term but necessary to Best Buy’s long term viability.
“I am a CEO who takes no pride in reducing head count,” Joly said. “The community is affected by [layoffs] but it would be even more affected if the company went under.”