Best Buy's sales surprise bodes well for holiday

NEW YORK - Best Buy's third-quarter sales gain is a positive sign for the electronics retailer as the holiday season kicks off.

Both revenue and earnings per share beat expectations, and Best Buy (BBY) stock rose in morning trading.

The two-month holiday shopping season is crucial since it accounts for about 20 percent of the retail industry's annual sales. Best Buy CEO Hubert Joly said he expects competition for shoppers to be "intense" this year. Best Buy plans to offer more gifts under $100 but be disciplined about markdowns and promotions, which helps protect profit margins.

In a call with investors, Joly said the limited supply of some hot products and possible labor strife on the West Coast could hinder sales. He forecast flat revenue for the fourth quarter.

Richfield, Minnesota-based Best Buy has been cutting costs and revamping stores to improve results as it faces increased competition from online retailers and discount stores. For example, it has been increasing its speedier "ship from store" deliveries. Last year it shipped from 400 stores, and this year it will ship items from all 1,400 of its stores.

In the third quarter, revenue edged up less than 1 percent to $9.38 billion. Analysts expected revenue to decline to $9.1 billion, according to Zacks Investment Research. Revenue in stores open at least one year, a closely watched performance metric, rose 2.2 percent in the quarter.

Computers, video games, TVs and appliances were the best-selling items. Sales of services, tablets and phones were weaker, despite the flashy launch of Apple's iPhone 6 in September.

Net income after paying preferred dividends totaled $107 million, or 30 cents per share. That compares with net income of $54 million, or 16 cents per share. Adjusted for one-time items, net income totaled 32 cents per share. Analysts expected 25 cents per share.

Shares gained $2.76, or 7.8 percent, to $38.30 in morning trading.