Updated from 8:27 a.m. EDT

Best Buy

(BBY) - Get Report

cut costs and increased sales in its first quarter, blowing away Wall Street's profit expectation, but the consumer electronics giant kept its earnings target in place for the year in a display of caution about the economy.

The company boosted its first-quarter earnings by 38% to $234 million, or 47 cents a share, compared with the $170 million, or 34 cents a share, it logged in the same quarter last year. Analysts were expecting earnings of 36 cents a share, according to Thomson First Call.

Shares of the retail chain recently were up $1.66, or 3.4%, to $50.69.

Best Buy held fast to its previous earnings guidance for the fiscal year, estimating results in a range from $2.65 to $2.80 a share. Analysts, on average, forecast results in the midpoint of that range at $2.72.

"Realistically, we think it's too early in the year to change our view on earnings," said Best Buy CEO Brad Anderson on a conference call with analysts.

Anderson said Best Buy is operating in an "economically mixed environment" with rising interest rates, high gas prices and a softening housing market posing headwinds to consumer spending. But ongoing demand for flat-screen televisions and other big-ticket items is providing a tailwind for the leading electronics chain.

In its first quarter, Best Buy's sales rose to $6.96 billion from $6.12 billion a year ago. Analysts projected sales of $6.84 billion. Same-store sales, or sales at stores open at least a year, rose 4.9%, with domestic same-store sales up 4.6% and international comps up 7.1%.

"The comparable-store sales gain was driven by an increase in the average transaction size, as the company's revenue mix continues to reflect a shift toward higher-ticket items," Best Buy said.

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

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, 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.

Weinhart cautioned against creating a parallel between Best Buy and Circuit City.

"The cost cuts were the big surprise in Best Buy's results," he says. "Its cautious tone on sales for the rest of the year is something to keep in mind with Circuit City. It's appropriate, given that we're in the

first half of the year, and we're seeing some signs that the consumer spending spree that we've been on for the last few years is winding down."