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In your face! Best Buy surprises detractors with strong profits boost

Best Buy turned 50 years old on Sunday, but the real celebration is today after the retailer confounded expectations by posting a 6.3 percent profit increase during the second quarter.

The forecast for the Richfield-based retailer was gloomy after Target cited a downturn in electronics sales during its disappointing results last week, but Best Buy surprised analysts with a better-than-expected performance.

Revenue rose to $8.53 billion, beating estimates of $8.39 billion, and profits rose to $185 million. Meanwhile its earnings-per-share hit 56 cents, well above estimates of 43 cents.

This was down in no small part to a 24 percent growth in its online business, while overall domestic store sales rose 0.8 percent.

Demand for wearable tech like Fitbits, as well as TVs and appliances, offset declines in mobile phones and gaming.

What the media said pre-results

It should leave plenty of publications with egg on their faces, after they were confidently predicting the electronics giant was circling the drain ahead of the results, based on forecasts from stock market analysts.

Investment website The Street’s piece on Monday was titled: “Could a Best Buy crash be just a few hours away?” with Jim Cramer, the former host of “Mad Money,” telling the website “Best Buy doesn’t excite me.”

The Wall Street Journal published a story called “Best Buy’s mounting troubles,” saying the company’s turnaround has “matured and growth is proving hard to maintain,” though it added CEO Hubert Joly “deserves accolades” for the job he’s done righting the ship from the position it was in four years ago.

ValueWalk asked “Is the end near for Best Buy?,” noting “many have written off Best Buy as a showroom for Amazon” and it’s been forced to “push more frequent discounts to compete in the rapidly changing environment.”

What they’re saying now

The Wall Street Journal referred to a “surprise increase” in sales, saying Tuesday’s figures suggest Best Buy “is winning market share in the consumer electronics category” and is “able to somewhat slow the intrusion of online-only retailers like Amazon.”

The Street focused its Best Buy coverage on a decision by Hubert Joly to sell $12.8 million of his company stock in June, saying he “must be kicking himself today” as Best Buy’s stock is now worth 18 percent more. The website notes the results “outpaced analysts’ estimates.”

Best Buy

This is what happened to Best Buy’s share price on Tuesday. (Photo: MarketWatch)

ValueWalk hadn’t posted a follow-up article as of Tuesday morning, but CNN Money says much of the company’s unexpected success could be down to shifting trends among American consumers.

“Overall, Americans have been lately shifting more of their spending towards home renovations, furnishings and cars and away from smaller gadgets,” which benefits Best Buy given its stock of home appliances and TV/theater systems.

“Best Buy is one of the few success stories amid a litany of struggling retailers,” CNN Money added.

BringMeTheNews last month spoke with two retail experts who predicted Best Buy should continue to flourish in future years, albeit with a smaller physical footprint, because one area in which it excels compared to competitors is its customer service and expert knowledge in-store.

“Service is a differentiator, like their Geek Squad,” Paula Rosenblum, of Retail Systems Research, told BringMeTheNews. “I bought a TV from Amazon instead of from Best Buy and I regretted it.”

“There’s always going to be people who need assistance and want to go to a store and bring in their electronics for help.”

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