Best Buy Inc.'s (BBY) fiscal second-quarter earnings fell a bigger-than-expected 22% as shoppers snatched up lower-margin laptops and its international business swung to a loss.

But the largest U.S. consumer electronics retailer by sales said it posted additional market-share gains and saw a slight improvement in traffic in its stores, providing hope for the holiday season.

It also raised its fiscal-year outlook and said sales trends improved as the quarter progressed.

Shares fell 2.5% premarket to $39.41 Tuesday on the quarterly profit miss, but the stock through Monday's close was also up 44% this year.

"We still like this stock as a market leader, especially now that Circuit City is gone, but we believe scrutiny of pricing and margins is likely to increase, which may create some short term uncertainty around the stock," RBC Capital Markets analyst Scot Ciccarelli said in a note to clients Tuesday.

Best Buy now expects earnings of $2.70 to $3 a share on revenue of $48 billion to $49 billion, with same-store sales off as much as 2%. In March - as the stock market was bottoming - the company predicted earnings of $2.50 to $2.90 a share, revenue of $46.5 million to $48.5 million and a same-store sales decline of up to 5%.

It's been a year since Best Buy rolled out its big push in wireless phones, so some of the gains it posted last year aren't repeating, and that showed up in the results. The launch of the new iPhone and several promotions intended to boost store traffic also hurt the U.S. gross margin rate, which fell 60 basis points.

Still, Best Buy said its mobile phone franchise gained market share in the second quarter. It also claimed share gains in flat-panel TVs, digital imaging and notebook computers, which posted a double-digit same-store sales increase in the U.S.

While consumers have been wary of big-ticket, discretionary purchases, many analysts have expected back-to-school sales of personal computers and laptops to offset some of the weakness.

In addition, the demise earlier this year of Circuit City Stores Inc. (CCTYQ) has sent Best Buy, Wal-Mart Stores Inc. (WMT) and other players into a race to capture that business.

For the quarter ended Aug. 29, Best Buy reported a profit of $158 million, or 37 cents a share, down from $202 million, or 48 cents a share, a year earlier.

Revenue increased 12% to $11.02 billion, reflecting the addition of Best Buy Europe's sales and the addition of 170 net new stores in the past year. Same-store sales, or sales at stores open at least 14 months and including Internet sales, fell 3.9%. That was better than the 5.8% decline expected by analysts surveyed by Thomson Reuters.

Overall, analysts were looking for earnings of 42 cents a share on revenue of $10.78 billion.

Gross margin edged up to 24.4% from 24.3% as the higher-margin phones sold in Europe offset the U.S. weakness.

In the U.S., revenue was up 2% as the company added a net 104 new stores. Same-store sales fell 3.1% as traffic increased slightly but was more than offset by a reduced average transaction size. Best Buy estimated it gained about 2.7 percentage points of market share as of July 31. Among product categories, U.S. same-store sales of TVs and other consumer electronics fell 2.4%, computers and home office gear sales rose 7.3% and entertainment software plunged 23.4%. TV unit sales actually increased, but prices continued to fall.

Appliance sales in the U.S., remained weak, falling 10.1% on a same-store basis.

International revenue soared 65%, on the addition of Best Buy Europe and the new stores. However, same-store sales dropped 8.3% on the currency-exchange impacts and because Europe's sales figures won't be included in consolidated results for another quarter. The segment posted an operating loss on expenses tied to Best Buy Europe, too.

-Tess Stynes contributed to this story.

-By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145; maryellen.lloyd@dowjones.com

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