Mobile market helps Best Buy to big quarter

There was some encouraging news from the retail industry Tuesday, as Richfield-based Best Buy reported a big jump in earnings and overall sales.

Best Buy reported a higher-than-expected quarterly net income, and raised its full-year profit outlook on strength in its very profitable mobile phone business.

The consumer electronics giant earned $254 million in the quarter that ended on Aug. 28. That was up 61 percent from the same three-month period a year ago, when retailers had to aggressively cut prices to get consumers to spend.

Best Buy topped Wall Street's earning expectations by nearly 40 percent.

The retailer's overall sales were slightly below the Street's expectations, coming in at $11.3 billion. Sales at stores open at least for 14 months, a key benchmark, fell .1 percent.

Regardless, Best Buy CEO Brian Dunn was quite happy with the company's performance, given the country's economic woes and consumers who are still cautious.

"Many customers are being highly selective about when they spend their money," Dunn said.

Mobile phones are very profitable, and wireless providers give Best Buy a reward for signing up customers.

Best Buy's customers bought more cell phones, appliances and tablet computers. But sales of televisions, video game consoles, video games, music and movies all fell.

Fortunately for Best Buy, mobile phones are very profitable, with wireless providers giving Best Buy a reward for signing up customers.

"They get an upfront bounty, straight from the actual service provider," said Matt Arnold, a retail analyst with Edward Jones. "That's clearly a high-margin bounty, relative to the labor it takes to service customers there."

This has been a key year for the mobile business, with the launch of hot smartphones like Apple's iPhone 4.

While retail sales at Best Buy and other retailers show the consumer seems to be slowly but surely rebounding, there's not all that much bounce to the rebound.

"Consumers are still in a cautious place," said R.J. Hottovy, a retail analyst with Morningstar. "Unemployment remains high, at above 9 percent. Wage growth has been pretty stagnant. So generally speaking, we're expecting it'll be a pretty cautious consumer over the next 12 to 18 months."

Hottovy suspects much of August's retail sales uptick may have been inspired by retailer price-cutting. Hottovy is expecting just mild retail sales growth this year and next, and a fairly drawn-out economic recovery.

Best Buy's results coincided with a government report on Tuesday that showed sales at U.S. retailers rising more than expected in August. Retail sales notched their largest gain in five months -- .6 percent, excluding a decline in car and truck sales.

The retail sales report calmed fears among some observersof a double-dip recession.

Wells Fargo senior economist Scott Anderson thinks the chance of a double-dip recession within the next year and a half is pretty low -- about 25 percent. He expects consumer spending will continue to grow in coming months.

"But not enough to really move the needle in terms of jobs, or really get our unemployment rate back down to where we need it to be," said Anderson. "But certainly we're moving in the right direction."

"I wouldn't break out the champagne," said Ed Lotterman, an economist at Augsburg College, who says some of the sales bump could also reflect people breaking down and buying essentials they had long gone without.

"The fact that retail sales are up to an encouraging level is useful. But it's not a sign that the recession is completely over, or the economy is really picking up speed."

So, while it seems consumers are spending more, they're nowhere close to spending enough to get the economy to grow robustly, or put a serious dent in the unemployment rate.

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