Best Buy Is Set For More ‘Aggressive’ Moves

By Steve Smith -- TWICE, 4/4/2007 12:05:00 PM

Minneapolis — Best Buy reported healthy sales and earnings gains for its fiscal year and fourth quarter, ended March 3, showing it was one retailer that survived and thrived during the flat-panel pricing debacle of the past several months and is ready to get more aggressive across the board.

During the fourth quarter, which was a week longer than the previous year’s quarter, total revenue increased 21 percent to $12.9 billion with a comp-store sales gain of 5.9 percent, due to that extra week of business, and 231 new and acquired stores. Online sales had revenue growth of about 40 percent. Net earnings for the quarter were $763 million, up from the previous year’s fourth quarter of $644 million. Operating income as percent of revenue for the quarter was relatively flat vs. last year to 8.8 percent.

In a conference call with financial analysts and the media, vice-chairman/CEO Brad Anderson said, “We did better in the fourth quarter than we expected ... in a tough, competitive environment.”

The bad news for Best Buy’s competitors is that Anderson told analysts, “We plan to be aggressive and expand aggressively. We have gotten terrific results [in the United States] with the Geek Squad, Vista PCs and Best Buy For Business,” and the chain’s entry into China.

He volunteered, “Technology is changing fast” and so is CE retailing. “Change has served us well in the past. Our plan is simple. Anticipate where customer needs and wants are. Get an understanding from our associates what those unmet customer needs are and give our employees the capabilities to meet them.”

Anderson said that consumer centricity is “the core of our strategy globally,” and that Best Buy would continue to “consider acquisitions” if the right opportunities come along.

Best Buy thinks of its business differently than five years ago. Back then, Anderson said, the chain would have focused on the technology to increase market share and earnings. Consumer centricity “is a better business model, but it is harder to do. You start with the customer’s problems and desires and how to get right solutions from them. We rely on our suppliers, our employees and outside vendors to meet those needs.”

He acknowledged that even for Best Buy there are “turbulent waters to navigate now” and sees competitors either closing locations or closing for good. Those store closings will provide Best Buy “with an opportunity later in the year to build share,” Anderson said.

With consumer centricity the chain has its “best shot than ever before” to continue to grow. Anderson added that Best Buy is at the top of its game in the “capabilities we can provide to our [vendor] partners. We are in a strong position and [they] know what we bring to the marketplace.”

He added that the way the marketplace is now it is “wonderful for us” because “if we have better talent and capabilities that we can deploy now, we become more valuable to our strategic partners and suppliers. We intend to seize the day. We see unprecedented market gains across the board.”

Brian Dunn, president/COO, said that today’s consumer “won’t stand for a sterile, transactional [retail] experience, which is good for Best Buy.”

He noted that the chain’s market share during the fiscal year was “20 percent, an all-time high. Flat-panel TVs, gaming, notebook PCs, our Rewards Zone, which has 18 million members who visit our stores more frequently and spend more than average customers,” drove their business. “We also hear that [consumer] involvement with our employees is better.”

During the upcoming fiscal year Best Buy will open 95 stores in the United States and 35 internationally. “We will be expanding with Apple in 200 stores by this fall, which is an excellent example of “standing with the customer and providing choice,” Dunn said.

He added that consumers “still love flat panel and we will be there for them, with end-to-end home theater solutions.” He said that gaming, the Vista operating system and the Geek Squad will all be revenue and profit drivers.

Speaking of expansion, Darren Jackson, executive VP/chief financial officer, said that its Pacific Sales operation will expand from 14 to 19 stores and “like Magnolia Hi-Fi, it serves a more affluent customer. We see it eventually expanding to 200 stores.”