Best Buy Dec. Comps Down 7%

By Alan Wolf -- TWICE, January 9, 2009

Minneapolis — Best Buy’s domestic same-store sales fell 6.8 percent and net sales slipped 1 percent to $5.9 billion for the five weeks, ended Jan. 3.

The December results underscore the dramatic downturn in consumer confidence and spending during the critical holiday selling season.

Best Buy attributed the comp-store sales decline to a decrease in traffic, which was partially offset by an increase in average ticket. The drop-off neutralized net sales, which included gains from the addition of 138 new stores over the past 12 months.

Total sales at Best Buy rose 4 percent to $7.5 billion for the five weeks, and comps fell 6.5 percent worldwide.

Despite the downturn, the country’s No. 1 CE chain believes it continued to gain market share during the holiday shopping season, particularly in mobile phones, computing, home theater and music, due to new store openings and its customer centricity strategy.

“While the environment continues to be as challenging as we expected, consumers are being drawn to brands that they trust, and they are responding to our customer-centric model,” said Brad Anderson, vice chairman and CEO.

Jim Muehlbauer, executive VP and chief financial officer, said the revenue results for December were in line with projections and reflected “strong market share gains.” He said the company managed its promotions effectively, and that while sales trends improved as the month progressed, consumer spending patterns during the post-holiday period remain unclear.

Best Buy lowered its earnings outlook for the full fiscal year in anticipation of restructuring charges it will take as it streamlines operations to prepare for “a challenging fiscal 2010 environment.”

Those actions include a voluntary separation program offered to its 4,000 headquarters employees last month. According to published reports, only about 500 workers, or 12.5 percent of the corporate workforce, have accepted the buyouts, which may prompt Best Buy to resort to layoffs. A determination is expected to be made later this month.

On the product front in December:

·         CE comps fell 8.7 percent, reflecting reduced demand for digital cameras and MP3 players and “significant declines” in GPS pricing. The total television category posted a high single-digit comp gain, while flat-panel TVs showed low double-digit comp increases on even stronger unit growth;

·         Comp sales of appliances fell 24.5 percent for the month amid the weak majap market;

·         Home-office comps grew 6.5 percent, driven by “very strong” double-digit comp sales gains in mobile phones and accessories, while notebook computers experienced low double-digit comp sales gains;

·         Geek Squad services revenue was flat, with comps down 0.5 percent; and

·         Entertainment software comps declined 12.2 percent, with music and movies down by the double-digits. Video gaming was down by the mid-single digits, primarily due to a shift toward software and reduced sales of large-ticket consoles, as well as comparisons with strong results in the prior year's period.

Best Buy said e-commerce sales grew about 34 percent during the period, and that fiscal year-end inventory levels will likely be flat in dollars due to “aggressive management.”

The company will report its fiscal fourth-quarter earnings on March 26.