Higher sales of notebook computers, flat-screen TVs boost Best Buy’s 4th-quarter results

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Laptop, TV sales help juice Best Buy’s 4Q profit

NEW YORK — Even in a weak economy, Americans increasingly feel that gadgets such as smart phones aren’t luxuries but necessities.

That shift has helped electronics sales weather the recession better than some other categories and helped Best Buy post a strong fourth-quarter profit Thursday on a steep sales increase fueled by flat-panel TVs, notebook computers and wireless gadgets.

Best Buy’s profit rose 37 percent, and its revenue grew 12 percent to $16.55 billion. It also projected a brighter-than-expected 2010.

Even though consumers faced tough challenges in 2009 such as the housing slump, job fears and personal debt, CEO Brian Dunn said on a call with investors, they often cut back elsewhere rather than electronics.

He said unit sales of TVs, notebook computers and cell phones increased enough during the year to offset significant declines in prices for some of the items.

“Some of the things we offer no longer fall under the category of discretionary purchases,” Dunn said. “These solutions have become such integral elements in peoples lives that they have little or no tolerance for any kind of disruption if things aren’t working the way they should.”

That’s true for Sandy Kaye, 29, who left her job as an event planner and went through a divorce in August. She moved in with her father and was unemployed for six months before starting a temp job, but she never considered giving up her iPhone.

“I use it as a phone, for e-mail, it’s my alarm clock, it has my grocery lists on it … it’s my crutch,” said the Milwaukee resident. “It’s so much a part of my life I’m willing to not buy new clothes or new shoes so I don’t have to give up my phone.”

Best Buy’s profit for the three months ended Feb. 27 rose to $779 million, or $1.82 per share. Analysts polled by Thomson Reuters, on average, predicted a profit of $1.79 per share. Excluding an impairment charge in last year’s quarter, profit rose 13 percent.

Higher sales of notebook computers, flat-screen TVs and cell phones were partly offset by lower selling prices. Sales of music and movies, categories where more shoppers are buying online, fell.

Because of tough competition in higher-priced items like flat-screen TVs and laptops, electronics retailers have been pressured to lower their prices and make less profit on them.

The average price of a flat-panel screen fell 26 percent to $660 in 2009 from $894 in 2008, according to market research firm NPD Group Inc.

In response, Best Buy has increased its service offerings — such as computer setup, car installation, Geek Squad tech services and others — as well as more higher-margin items such as appliances and cell phones and plans.

The company plans to open 75 to 100 small-format stores, mostly selling mobile devices only. Best Buy offers phones and plans from national carriers AT&T, Sprint, T-Mobile and Verizon, along with other carriers on a regional basis and prepaid phones and plans.

Sales in stores open at least 14 months rose 7 percent during the key holiday quarter. That measure is important for retailers because it measures growth at existing stores rather than from newly opened ones.

Best Buy has gained market share since rival Circuit City liquidated last year, but competition with discounters and online retailers remains tough.

The company said it believes it took a bigger piece of the market for flat-panel TVs, notebook computers, cell phones and digital imaging during the quarter.

For the year, profit rose 35 percent to $1.32 billion, or $3.10 per share. Revenue rose 10 percent to $49.69 billion.

The company says it expects a profit of $3.45 to $3.60 per share in the fiscal year ending in February 2011. That is better than the $3.37 analysts predict.

Best Buy expects revenue of $52 billion to $53 billion, in line with analyst expectations of $52.14 billion.

It expects sales in stores open at least 14 months to rise 1 percent to 3 percent during the year.

Best Buy, based in Minneapolis, expects to open 50 to 55 new large-format Best Buys and 10 to 15 Five Star stores in China.

Shares rose $2.08, or 5 percent, to $43.26 during midday trading. They’re nearing levels not seen since mid-December, when shares peaked at $45.55 then tumbled on worries about thinning profit margins.