Best Buy (BBY) shares are up nearly 8% this morning following the company’s fourth quarter earnings report. For the quarter ended in February, Best Buy reported diluted EPS of $1.82, up from $1.35 a year ago. Revenue jumped 12%, to $16.55 billion for the quarter. Analysts were expecting EPS of $1.79 on revenues of $16.08 billion.

For the company’s fiscal 2010, revenues totaled $49.7 billion and diluted GAAP EPS came in at $3.10, up 30% from a year ago. Best Buy also increased operating cash flow by 18% year-over-year and reduced capital expenditures by 53%.

For the year ahead, Best Buy projects revenues of $52-$53 billion, and an increase in same-store sales of 1%-3%. The company plans to expand by opening 135-170 new stores worldwide, with most coming in the US. That yields a capex spending increase to $850 million. Best Buy expects diluted EPS of $3.45-$3.60.

Best Buy’s press release had little in the way of comment, other than the CEO’s bromide that “the next stage of our growth will be fueled by our employees helping customers connect to the things and people they care most about.” Yawn.

While the numbers are pretty good, especially given the difficult year, the entire picture was not as rosy. Gross profit fell year-over-year, from 24.6% to 24%. Inventories rose from $4.75 billion to $5.49 billion, almost 14%.

The cautionary tale here is that Best Buy seems to be trying to work its way through rising inventory levels by lowering prices. In 2007, inventories stood at about $4 billion, rising to $4.7 billion in 2008. Those were the good old days, when consumers were still spending. Inventories stayed flat in 2009, before rising to $5.49 billion in 2010.

In its quarterly report last month, Wal-Mart Stores (WMT) noted that its same-store sales were lower than expected due to “deflation in grocery and electronics.” Electronics made up 13% of Walmart’s sales in the 2009 fiscal year. That’s more than $50 billion in sales, slightly more than Best Buy’s total sales.

The company has also been unable to turn around its same-store consumer electronics sales in its international division. Best Buy’s revenues fell another 3% in 2010, after falling 3.3% in 2009. Where the company is picking up same-store sales is in its home office category, with jumps of about 14% in both domestic and international sales.

That trend augurs well for PC makers like Hewlett-Packard (HPQ) and Dell (DELL). Consumer electronics products like TVs, DVD players, and such might have a tougher slog. Panasonic (PC) and Sony (SNE), among other manufacturers, could encounter some resistance to new products like 3-D TV.

In its quarterly report last month, Wal-Mart Stores (WMT) noted that its same-store sales were lower than expected due to “deflation in grocery and electronics.” Electronics made up 13% of Walmart’s sales in the 2009 fiscal year. That’s more than $50 billion in sales, slightly more than Best Buy’s total sales.

The collapse of Circuit City helped Best Buy this year, and its outlook for the coming year are good. Still, there are plenty of hurdles and the company needs to clear them all.

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