Video games, TV ruin Best Buy's profits

Best Buy, the largest US consumer-electronics chain ,reported a net income drop of 18 per cent to $192m (39 cents per share), despite strong sales in the first quarter.

"Our first-quarter results fell short of our expectations." Best Buy CEO Brad Anderson said. "Strong revenue results from lower-margin products significantly cut into our gross profit rates."

Profit was dragged down by products such as notebook computers and gaming hardware carrying lower gross margins. Best Buy reported $234m (47 cents per share) in income a year earlier.

Revenue increased 14 per cent to $7.93bn in the first quarter, which ended June 2. One year ago, Best Buy reported $6.96bn.

Best Buy is also pointing a finger at discounts in home theater equipment such as flat-screen TVs transitioning to updated models for taking a bite out of the profit margin.

Looking ahead, the company said consumer spending will be difficult to predict this year. But Best Buy is confident that sales of flat-panel TVs, gaming and notebook computers will accelerate — which could continue to cut into the company's short-term gross profit rate.

Best Buy forecast fiscal-year earnings of $2.95 to $3.15 per share. The figure is below the Reuters consensus of $3.16. ®