Best Buy Profits Drop 19% on More Spending

Best Buy (BBY Quote - Cramer on BBY - Stock Picks) fell short of Wall Street's expectations as its fiscal second-quarter profit declined 19% from a year ago, sending shares 8.4% lower to $40.05 in early trading Tuesday.

The Minneapolis-based electronics retailer posted net earnings of $202 million, or 48 cents a share, for the quarter ending Aug. 30, falling from $250 million, or 55 cents a share, in the year-ago quarter. Best Buy said the decline in second-quarter earnings reflects spending to enhance U.S. stores and to roll out Best Buy Mobile in the remainder of its stores.

Best Buy said that revenue grew 12% from a year ago to $9.8 billion, aided by an increase in comparable-store sales. However, the company said that its gross profit as a percent of revenue slipped to 24.3% from 24.4% from a year earlier.

Analysts expected Best Buy to notch a profit of 57 cents a share on revenue of $9.67 billion, according to Thomson Reuters. Shares were lately down $2.72, or 6.2%, to $40.98 and have now fallen nearly 20% for the year.

"In a challenging environment that finds many of our competitors retrenching, we are growing and opening more new stores," said Brian Dunn, president and chief operating officer of Best Buy, in a statement. "We believe it's prudent for strong companies to distance themselves from their competitors during tough times. We know that when the world's most resilient economy rebounds, we'll be well positioned to benefit from it."

Looking ahead, Best Buy said it now expects a comparable-store sales gain for fiscal 2009 in the upper half of its previously disclosed range of 1% to 3%. Best Buy estimates total revenue for the fiscal year of roughly $44 billion for the base business, which excludes Best Buy Europe. Second-half comparable-store sales gains are expected to be lower than the first-half gain of 4%, which the company said is due to macro-economic headwinds and the cessation of government fiscal stimulus checks.

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