TGT Target Corp

By Paul Ziobro 

Best Buy Co. proved again that it is the unlikely outperformer among traditional retailers in expanding its online business.

For a third straight quarter, the electronics chain posted a 24% increase in its U.S. online sales from a year earlier. For the three months through October, online sales rose to $881 million, accounting for 10.8% of domestic revenue for the quarter.

Shares of the company closed up 14% to their highest level since 2010 and are up 51% so far this year. It is a stark change for the 1,400-store chain, which just four years ago was struggling with plunging sales and dwindling profits as consumers turned to such online rivals as Amazon.com Inc.

Wall Street analysts said Best Buy has created a reason for shoppers to choose it over Amazon.com by maintaining its deep merchandising in electronics and adding services such as free home visits for shoppers to help select the most appropriate new gadgets and technology for their residence. "That could point to a more sustainable, competitive advantage," Credit Suisse analysts said.

The chain's results provide yet another positive glimpse of the consumer ahead of the key holiday-shopping season. Retailers including Home Depot Inc., TJX Cos. and Wal-Mart Stores Inc. all reported higher sales in the third quarter, while the Commerce Department said this week that total retail sales through October logged the strongest two-month stretch in the last two years.

At the same time, Best Buy fell victim to the recall of the Samsung Galaxy Note 7 smartphone , estimating that the absence of the product will dent sales by $200 million in the current quarter. Chief Executive Hubert Joly said customers accustomed to the Galaxy Note's large screen size and software are electing to not upgrade their phones to other models.

"The customers that would have got the phone are waiting. Many of them are very loyal to the form factor," he said on a conference call.

As a result, Best Buy forecast comparable-store sales -- which include online sales and stores open for 14 months -- will come in between a 1% fall and a 1% rise in its fourth quarter.

Samsung released the Galaxy Note 7 in August, but not long after reports of overheating batteries emerged, raising safety concerns and eventually causing the company to recall the phone and to stop production of the model entirely. The Korean manufacturer has said the fiasco will result in at least $5 billion in losses for the company.

The vast majority of mobile phones are sold through the nation's wireless carriers, but Best Buy accounts for about 10% of the U.S. market, according to Consumer Intelligence Research Partners.

Moody's analyst Charlie O'Shea played down the impact of the Samsung phone recall as well as the recall of the brand's washing machine.

"Best Buy will be able to overcome these and have a strong holiday and overall fourth quarter, driven in large part by continuing online acceleration," he said.

In gearing up for the holiday homestretch, Best Buy is investing more to staff employees in such categories as wearable technology and virtual reality, and in the area where shoppers pick up online orders in stores. Mr. Joly played down moves by Target Corp. and Wal-Mart to add specialized staff in stores to assist electronics shoppers.

"We have a competitive advantage based on the breadth of the assortment in stores, the quality of merchandise and the training that we have," he said.

Mr. Joly said the distinction between in-store and online purchases was increasingly blurred. Most shoppers start their research on the web and may place the order online, but about half the items "sold" online are linked to stores because shoppers pick them up in the store or they are shipped from the store.

Since Mr. Joly took the helm in 2012, he has exited from Europe and China, leaned on suppliers to help finance store improvements, and invested heavily in e-commerce.

For the October period, Best Buy said its U.S. revenue rose 1.3% driven by comparable sales growth of 1.8%, topping the 1% growth it had forecast. In its much smaller international segment, revenue increased 3.3%, driven by growth in Canada and Mexico and partially offset by foreign currency exchange.

Over all, Best Buy profit rose to $194 million from $125 million a year earlier. Revenue edged 1.4% higher to $8.95 billion.

--Anne Steele contributed to this article

Write to Paul Ziobro at Paul.Ziobro@wsj.com

(END) Dow Jones Newswires

November 18, 2016 02:47 ET (07:47 GMT)

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