Best Buy Defies Retail Doldrums, Posting Higher Sales -- 3rd Update

By Khadeeja Safdar Features Dow Jones Newswires

Best Buy Co., the electronics giant left for dead a few years ago, is bucking America's retail slump by turning its cavernous stores from a potential drag on its business into a way to fend off Amazon.com Inc.

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The company Thursday reported a slight increase in quarterly revenue, surprising investors who were bracing for a decline. Online sales jumped 23% in the U.S. from a year ago, accounting for $1 billion of business in the quarter and offsetting in-store declines.

Best Buy shares surged 21% Thursday to $61.25, setting an all-time high and marking its largest percentage gain since January 2001.

It is a reversal for a company that five years ago was struggling with plunging sales and dwindling profit as consumers browsed at brick-and-mortar stores but made purchases on Amazon and other websites, a practice called "showrooming." Some investors remain skeptical, with more than $2 billion in short interest, or bets that the share price will decline, according to research firm S3 Partners.

The company's modest growth stands apart in an industry that has struggled with declining mall traffic and a glut of traditional stores. Retailers are on pace to close a record number of stores this year and several are being liquidated in bankruptcy court. Two of Best Buy's competitors, RadioShack and hhgregg Inc., recently filed for bankruptcy protection with plans to close hundreds of stores.

While Best Buy has closed a dozen large stores and 40 smaller ones during the past year, it continues to operate 1,600 locations in North America and is increasingly able to use them to build up its e-commerce business. About half of its online orders are now either shipped or picked up from its stores.

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"The stores continue to be a great asset for us," Best Buy Chief Executive Hubert Joly said on Thursday. "They're a great asset from the standpoint of the customer experience on the more complex categories or experiences, and they're a great asset from a shipping and logistics standpoint."

To fend off digital competition, Best Buy gave up efforts to charge consumers more in stores than online. It promised in 2013 to match online competitors' prices and brought its prices in line with Amazon's -- a move that has paid dividends now that shoppers can instantly check prices on their smartphones.

The price guarantee made a loyal shopper out of Anton Robinson, a 34-year-old lawyer in New York City. He buys his music equipment from Best Buy because he prefers to test products in person and doesn't have to compare prices. "I want to know what a speaker sounds like," he said. "And I know the price point is going to be there."

Now many other retailers, including Target Corp. and Wal-Mart Stores Inc., are rushing to lower prices and use their stores to fill online orders. Best Buy "ripped the Band-Aid off early under this management team," said Seth Sigman, an analyst at Credit Suisse. "They quickly came to the realization that sharper prices are the future."

Best Buy also found a way to get more out of its giant stores. The company eliminated much of the floorspace once dedicated to DVDs and other media and has given it to brands such as Samsung, Verizon and Microsoft, which both pay rent and provide staff with expertise.

The chain benefits from selling higher-margin electronics and appliances at a time that traditional sellers like Sears Holdings Corp. are struggling. On Thursday, Sears reported that domestic comparable-store sales decreased 12.4% in its latest quarter, partly due to declines in home-appliance sales.

For the quarter ended April 29, Best Buy reported revenue of $8.53 billion, up 1% from the year-earlier period. Profit fell to $188 million, or 60 cents a share, down from $229 million, or 69 cents a share, a year ago, which was boosted by a $183 million legal settlement.

In a call with analysts, Mr. Joly said cellphone sales "were better than we expected" in the quarter thanks to unlimited data plans launched in February by Verizon Communications Inc. and AT&T Inc., which prompted shoppers to visit stores. Sales rose late in the quarter as U.S. consumers received tax refunds that had been delayed.

Best Buy got a boost from the release of Nintendo Co.'s new console, the Switch. It was released in limited quantities after its March debut sending shoppers to stores in search of the $299 gadget. Target executives said earlier this month that Switch helped it achieve its best quarterly electronics sales gains in three years.

Sales from the device helped struggling retailer GameStop Corp. post a 2.3% comparable-sales increase on Thursday, bucking analysts' expectations for a decline. "We are selling everything that we get our hands on," GameStop Chief Executive Paul Raines said in an interview.

Mr. Joly has been adding services, such as technical support and the company's Geek Squad repair services, to lessen Best Buy's reliance on new gadgets or televisions. On Thursday, he said Best Buy plans a nationwide rollout of in-home advisory services, in which consultants will visit consumers to field technology questions.

"Having these conversations in the home unlocks all sorts of discussions with the customers," Mr. Joly said. "There's some needs that people never talk about in the stores."

--Maria Armental contributed to this article.

Write to Khadeeja Safdar at khadeeja.safdar@wsj.com

(END) Dow Jones Newswires

May 25, 2017 19:41 ET (23:41 GMT)