Best Buy posts higher profit and raises outlook

NEW YORK (Reuters) - Best Buy Co Inc reported a higher-than-expected quarterly profit and raised its full-year outlook on strength in its mobile phone business, sending shares of the world's largest electronics chain up more than 7 percent.

Best Buy has stepped up its focus on selling more mobile phone, broadband and satellite and cable TV connections in recent quarters in a bid to boost margins while prices for televisions fall.

This also has been a key year for the mobile business with the launch of smartphones like Apple's iPhone 4, Research In Motion Ltd's BlackBerry Torch and HTC Corp's <2498.TW> EVO. On Tuesday, Nokia Corp unveiled its new lineup of smartphones.

"Best Buy Mobile is the... single biggest driver of profit growth for us this year," Chief Executive Brian Dunn said on a conference call.

The results coincided with a government report on Tuesday that showed sales at U.S. retailers rising more than expected in August and notching their largest gain in five months, calming fears of a double-dip recession.

While many customers are still being "highly selective" about when and where they spend their money, Dunn expects them to loosen their purse strings for consumer electronic items in the back half of the year.

"Customers traditionally rotate their spending to our categories during the holiday shopping season and a strong lineup of products coming across the board reinforces our confidence," said Dunn.

He sees products like Apple's iPad and other mobile computing devices being hot sellers this holiday season.

Best Buy shares, which have fallen 12 percent year to date, were up 7.4 percent at $37.22 on Tuesday. The strong results also lifted shares of smaller rivals like RadioShack Corp and hhgregg .

"Best Buy is making a significant effort to grow its mobile business. It is a category that's expected to do well for the next couple of years even. That's such a nice pairing," Edward Jones' Matt Arnold said, adding he expects the strength in that business to continue for a while.

The company also is holding its own in its battle against industry goliaths such as Wal-Mart and Amazon.com by stepping up its efforts to help customers hook up complicated gadgets, Arnold said.

While Best Buy acknowledged that its overall market share was slightly down in the latest second quarter, it reassured investors that it will see overall share gains in the second half of the year.

The company, which runs stores in the United States, Canada, Europe, China, Mexico and Turkey under the Best Buy, Best Buy Mobile, and Car Phone Warehouse names, said its operating margin rose 1.1 percentage point to 3.6 percent in the quarter.

Net profit rose to $254 million, or 60 cents a share, in the second quarter from $158 million, or 37 cents a share, a year earlier.

Analysts on average were expecting a profit of 44 cents a share, according to Thomson Reuters I/B/E/S.

Sales rose about 3 percent to $11.34 billion, but missed the analysts' average estimate of $11.54 billion. Sales at stores open at least for 14 months fell 0.1 percent.

The company raised its fiscal 2011 earnings forecast to a range of $3.55 to $3.70 a share, up from its prior outlook of $3.45 to $3.60.

(Reporting by Dhanya Skariachan, editing by Dave Zimmerman and Lisa Von Ahn)