Best Buy Stays Strong

Consumer electronics led the improvement, with a 12.1% year-over-year gain in same-store sales, including triple-digit growth in same-store sales of flat-panel televisions. In addition to flat-panel televisions, strong sales of MP3 players, notebooks and computer services more than offset same-store sales declines in tube and projection TVs, CDs, desktop computers and printers.

While sales rose, Best Buy cut back on the costs related to its "customer centricity program" that had weighed on its profitability last year as the company rolled out its growth initiatives. The company's strategic program is an effort to manage its growth, while improving the sales experience for customers in its stores. After reducing spending on advertising and other expenses, the company said its selling, general and administrative expense rate dropped to 20.5% for the quarter from last year's 21.6%.

Best Buy's chief financial officer, Darren Jackson, said the company stands by its goal of reducing its expense rate by 30 to 50 basis points this year.

"Some of the cost cuts that came out of this quarter don't sound like they'll carry through for the rest of the year, but Best Buy's labor productivity has increased sequentially since the third quarter," says Harris Nesbitt analyst Richard Weinhart. "That's a very important statistic because labor is one of the most expensive costs for a retailer. If Best Buy wants to improve the level of service at the store level without increasing labor rates or headcount numbers, they're going to have to keep improving productivity levels."

Best Buy's chief competitor, Circuit City (CC Quote), is scheduled to report its first-quarter results on Monday. Analysts are expecting the chain to report earnings of a penny a share, compared with last year's loss of 2 cents a share for the same quarter. Circuit City shares recently were up 68 cents, or 2.5%, to $28.11 as investors anticipated that Best Buy's strong showing is a preview to similar results at its smaller counterpart.