Best Buy Touts Share Growth, Q4 Prospects

By Steve Smith -- TWICE, 9/21/2009

MINNEAPOLIS — Best Buy emphasized its market share gains and opportunities to take more share, as well as holiday sales optimism, during an earnings conference call after it released its fiscal second-quarter earnings last week.

Best Buy reported lower net earnings and comp-store sales, but higher net revenue for its fiscal second quarter that ended Aug. 29 (see p. 41).

During the conference call CEO Brian Dunn said Best Buy “gained more market share in this space [in the U.S.] than anyone,” with 270 basis points of share growth in the quarter.

When asked if the demise of Circuit City has hurt profitability in CE, Dunn turned the question around and said, “When you peel away the onion” of Circuit’s demise, “it wasn’t a price leader. Its departure created an opportunity for customer acquisition.”

He stressed that Best Buy “will always be there on price,” but that this situation enables it “to connect price to service. Over time we will take share and build loyalty” with these new customers.

In discussing Best Buy long-term strategy, Dunn said that Best Buy views “flat-screen TVs, notebooks and mobile phones ... as on-ramps to the connected world.” He said that the chain’s future is related to giving customers the entry into “the connected world” and “not just sell boxes.”

Turning to specific product categories, Jim Muehlbauer, finance executive VP and chief financial officer, said that in TV during the second quarter, “we were in good position ... and had products in place. We led where we had to, in bundled solutions” and in larger-screen sizes.

Mike Mohan, CE products senior VP, said Best Buy had more “thinner and connected TVs .... that got our customers excited. We had better-quality sets and more robust offerings of exclusive brands [which] provided value and the best quality selection.”

In discussing other categories, Muehlbauer said the addition of iPhone was a “great success” in its Mobile stores during the quarter, doubling in volume. Muehlbauer noted increased share in digital cameras in the fiscal second quarter by “using margin” while still being profitable.

When asked about major appliances, Dunn said it was “important” to Best Buy. “The economic storm hit the category directly,” but it is “optimistic” about how the chain can still compete in it. “It is a multi-billion dollar industry we have under-indexed. Home sales will rebound in upcoming quarters, and the [appliance] market will be more competitive.” But he said trends such as the connected home and green initiatives related to majaps should play into Best Buy’s strengths.

Dunn concluded that he is optimistic about the holiday season because “relative value” of CE products “has never been greater. Value is more important than ever.” He noted that with CE products being “more affordable than ever ... it is a great time to be a consumer” even in these tough economic times.