MINNEAPOLIS _ Best Buy's shares surged 20 percent by midday Thursday and were on pace to hit an all-time high, signifying just how impressed investors were that the retailer was able to find sales growth amid an otherwise gloomy retail landscape.
Higher sales in gaming amid the launch of the Nintendo Switch and sales that improved once delayed federal tax refund checks arrived helped boost the company's sales above its own and analysts' expectations in the first quarter. The company also cited strong sales in computing and the connected home segment.
The electronics retailer, headquartered outside Minneapolis, expecting the momentum to continue into the current quarter, raised its guidance for the year.
There has been a building sense that brick-and-mortar retailers can't compete with online-only retailers, said David Schick, lead retail analyst with Consumer Edge Research.
"So these results are changing lots of minds this morning as to the efficacy and durability of their turnaround," he wrote in an email.
Overall sales at Best Buy in the quarter rose 1 percent to $8.5 billion, up from $8.4 billion a year ago. Comparable sales in the U.S. rose 1.4 percent, which was much better than the 1.5 to 2.5 percent drop the company had forecast. Online sales rose 23 percent.
Of the 114 retailers Retail Metrics tracks, the weighted average of same-store sales for the first quarter was flat. But it would have been negative overall had Wal-Mart not reported a small bump in sales, noted Ken Perkins, the firm's president. By comparison, Best Buy outperformed much of the industry.
"Expectations were really low going into the report," he said of Best Buy. "But they seem to be holding their own despite the onslaught from Amazon. They continue to invest in training of its associates, providing an experience you can't find from many other places."
The Nintendo Switch, which retailers have had trouble keeping in stock since it launched in March, also helped Minneapolis-based Target Corp. reverse a decline in its electronics sales in recent months. The retailer logged its best quarter in the category in three years.
On a conference call with analysts, Best Buy CEO Hubert Joly said the company, which just finished cutting $400 million in costs over the last few years, would begin a new cost-reduction phase aimed at finding $600 million in savings over the next several years to help fuel future investments. Some of those savings, executives said, would come from bringing more automation to parts of its business such as the supply chain and its call center.
Joly said Best Buy will also nationally roll out later this year an in-home adviser program it has been testing in a handful of markets for about a year. Through this service, consultants make free home visits and advise consumers how to better equip their homes with the latest technology to address their needs.
David Magee, an analyst with SunTrust Robinson Humphrey, wrote in a research note that, among Best Buy's plans, the next round of cost-cutting stood out, as did plans to more widely expand some newer service offerings sooner than expected.
"The strong results were particularly impressive given the headwinds faced by most retailers (delays in refunds, holiday shifts) during what is a seasonally less important quarter," he wrote.
Best Buy "got a good allocation of the Nintendo Switch, which had a very strong launch," he wrote. "And, while phones were down, there was still greater interest in the category than expected."
In the February-to-April quarter, Best Buy's net earnings were $188 million, down from $229 million in the same quarter a year ago, when it benefited from some settlement proceeds. When adjusted for one-time expenses, it earned 60 cents a share, which was better than the 40 cents analysts were expecting and the 43 cents it reported a year ago.
Joly said better-than-expected sales in mobile phones also helped the company in the quarter. Given the better performance, which was not dragged down as much by product shortages as executives initially thought, the retailer raised its sales forecast for the year to 1 percent growth on a 52-week basis, up from its previous plan for flat performance.
While it may have felt pressure in the quarter from liquidation sales, Best Buy is expected to get a boost from the demise of one of its largest regional competitors, Hhgregg, which began going-out-of-business sales at its 220 stores last month. While many retailers such as Home Depot are also expected to pick up some incremental sales, some analysts think Best Buy will be the biggest beneficiary.
Earlier this year, Joly declared the retailer's Renew Blue turnaround phase to be officially over and ushered in a new strategic phase aimed at finding growth through digital, services and its international operations in Canada and Mexico.
This month, Best Buy announced it was rolling out a pilot program with Vivint Smart Home to 400 stores by the end of this summer. The partnership includes home monitoring service as well as design, installation and repair.
