Best Buy's Net Doubles In Q2
By Jeff Malester -- TWICE, 9/29/2003
MINNEAPOLIS — Best Buy more than doubled net earnings in its second fiscal quarter, hitting $139 million, up from $62 million in the year-ago period. At the same time, earnings from continuing operations climbed more than 75 percent in the second three months, reaching $140 million, up from $79 million in the same quarter in 2002.
Pleased with the retailer's earnings growth in the second quarter, vice chairman/CEO Brad Anderson placed the credit with company employees, "who worked hard to improve our gross profit rate, while boosting efficiency and productivity. Our team translated increased consumer confidence as well as tax refunds into strong growth in comparable store sales for the quarter, particularly during the back-to-school season," he said.
Anderson also attributed the sales gains to enthusiastic consumer response to Best Buy's recently launched Reward Zone customer loyalty program, although it also squeezed margins by 40 basis points.
As reported, revenue grew 17 percent in the second quarter, to $5.4 billion, up from $4.6 billion year-on-year, while comp-store sales gained 7.5 percent (TWICE, p.. 1, Sept. 15).
Revenue from domestic Best Buy stores increased 15 percent in the second quarter, hitting $4.9 billion, up from $4.3 billion in the same period a year ago. Comp-store sales rose 7.8 percent.
Revenue for the second three months in the company's international segment climbed 44 percent, to $486 million, up from $338 million year-on-year, while comp-store sales gained 4.1 percent.
Overall company gross profit as a percent of revenue edged upward 10 basis points in the second quarter, to 25.4 percent, compared with 25.3 percent in the same timeframe a year earlier. Expenses were about even with the same time last year, at 22 percent vs. 22.4 percent in the second quarter last year.
However, gross profit in the Best Buy stores segment grew at a faster pace, reaching 25.6 percent in the second quarter, an increase of 70 basis points from the 24.9 percent recorded year-on-year. These gains reflect a more profitable revenue mix due to increased revenue from higher margin digital products, particularly digital TVs, and more effective management of assortments, promotions and product lifecycles. The gross profit rate gain was partially offset by a significant increase in sales of computers, which generally carry a lower margin.
Expenses were reduced at Best Buy stores, to 20.9 percent, from 21.9 percent. The improvement was primarily related to the leverage associated with a high comp-store sales gain and administrative expense reductions, including an 8 percent reduction in personnel.
Operating income for the Best Buy segment reached $230 million in the three months, compared with $130 million in the same three months a year ago.
Gross profit in the international segment, however, slipped in the second quarter to 24.1 percent, down from 25.3 percent in the same quarter last year. This was due primarily to increases in promotional activity and a higher proportion of revenue from home office products.
Expenses in the international segment were 24.4 percent, from a year-earlier 25.6 percent, as a result of initiatives to improve corporate efficiency and the leverage associated with a larger base of stores. Best Buy added six Future Shop locations and 13 Best Buy units in the past 12 months.
The international segment's operating loss for the second quarter remained at $1 million, the same as in 2002.
For the first half, overall Best Buy revenue jumped 14 percent, to $10.1 billion, up from $8.8 billion in the first six months of the last fiscal year. Comp-stores sales climbed 5 percent. At the same time, the company moved into the black, reporting net earnings of $114 million, compared with a net loss of $271 million in the same six months in 2002.
Gross profit margin for the first six months was 25.4 percent, an increase of 10 basis points recorded in the same time frame last year.
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