Best Buy Co posted a 23 percent drop in quarterly profit on Thursday, but its adjusted results topped Wall Street estimates, helped by better-than-expected consumer demand and strong sales of mobile phones.

While Best Buy, the top U.S. specialty consumer electronics retailer, expects consumer spending to remain challenging, it forecast full-year earnings above current Wall Street targets.

Anthony Chukumba, an analyst with FTN Equity Capital Markets, said the results showed that Best Buy was not hurt as much as feared by the liquidation of former rival Circuit City Stores, and demonstrated that Best Buy is gaining clout with its suppliers, helping to boost its margins.

It also looks like consumer demand improved pretty significantly in January and February over December levels, which could have broader implications for the overall economy, said Chukumba, who has a buy rating on the stock.

Shares rose 10 percent to $36.88 before the opening bell.

Earnings came to $570 million, or $1.35 a share, for the fourth quarter ended February 28, down from $737 million, or $1.71 a share, a year earlier.

Excluding restructuring and impairment charges, Best Buy said adjusted earnings were $1.61 per share. Analysts, on average, had been expecting it to earn $1.40 per share, according to Reuters Estimates.

NEW STORES HELP DRIVE HIGHER SALES

Best Buy has taken several steps to counter the U.S. recession and fend off increased competition from discounters such as Wal-Mart Stores Inc , which has expanded its product offering and cut prices in the key holiday shopping season.

Best Buy has cut jobs and slowed new store openings while also expanding sales of mobile phones.

Analysts were watching to see if Best Buy's sales would be pressured in the fourth quarter as Circuit City, which filed for bankruptcy protection last year, liquidated its inventory.

Best Buy said its quarterly revenue rose 10 percent to $14.7 billion, helped by the opening of new stores and the inclusion of its European operations. Sales at stores open at least 14 months, or same-store sales, fell 4.9 percent.

The retailer said that U.S. same-store sales fell 2.5 percent in the combined January and February period, an improvement from the 6.8 percent decline notched in December.

Best Buy said its gross profit rate improved, as sales of high-margin mobile phones helped to offset demand for lower-margin laptop computers.

For the full year, it expects revenue of $46.5 billion to $48.5 billion, and same-store sales to be flat to down 5 percent. It expects to open approximately 65 net new stores.

Best Buy forecast earnings of $2.50 to $2.90 per share for its current fiscal year, while analysts, on average, were expecting $2.45 per share. (Reporting by Nicole Maestri, editing by Dave Zimmerman)

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