Best Buy Reports Weak Q4 Results

MINNEAPOLIS — Best Buy reported declines in its fourth-quarter profits and same-store sales amid an economic climate that CEO Brad Anderson described in a conference call today as "serious and very challenging."

Total revenue increased 4 percent to $13.4 billion for the three months, ended March 1, on net earnings of $737 million, which fell 3.4 percent from the year-ago period. Same-store sales slipped 0.2 percent.

Sales were fueled by the net addition of 137 new stores, including 98 in the United States, but were impacted by the loss of an extra week in the fiscal quarter. Excluding the calendar shift, revenue grew 9 percent.

Within its U.S. businesses, net sales grew nearly 1 percent to $11.2 billion, operating income fell by $5 million to $1 billion, and same-store sales slipped 0.9 percent. Best Buy attributed the domestic downturn to lower traffic; sales declines in majaps, music, movies, MP3 players and rear-projection TVs; and growth in lower-margin categories including notebook computers and gaming consoles.

Online sales grew by the low double digits, and the company's nine freestanding and 181 in-store Best Buy Mobile locations generated double-digit same-store sales during the quarter, outpacing the wireless industry. Pacific Sales, Best Buy's West Coast home-improvement chain, saw revenue rise 1.5 percent to $78 million, driven by five new store openings.

For the full fiscal year, total revenue hit the $40-billion mark, an increase of 11 percent, while operating income increased 8 percent to $2.2 billion and same-store sales rose 2.9 percent worldwide and 1.9 percent domestically. Best Buy estimated that its U.S. market share grew nearly 1 percentage point to 21 percent during the 12 months, while employee turnover improved by 8 percentage points to 60 percent.

The company ended its fiscal year with 357 Apple in-store shops and plans to add 300 more this year, and will remodel the majority of its Best Buy stores to accommodate Best Buy Mobile installations over the next 18 months. All told, the retailer will increase capital expenditures from $800 million to $1.1 billion this year, which will also be earmarked for about 140 new stores worldwide and preparations for Best Buy's entry into Turkey and Mexico, among other efforts.

During the conference call, senior executives said Best Buy would meet the current downturn by better execution than the competition and accelerating international expansion. Fully 40 percent of the company's growth came from outside the United States during its last fiscal year, said Best Buy International CEO Bob Willett, and offshore markets are critical to its long-term growth and diversification.

During the quarter the company opened six U.S. Best Buy stores, including two of its 45,000-square-foot stores, three of its 30,000-square-foot stores and one of its 20,000-square-foot stores.

On the product front, higher revenue from video gaming, notebook computers, flat-panel TVs and GPS devices were more than offset by declines in projection and tube TVs, MP3 devices, DVDs and CDs, the company said.

Consumer electronics, which represented 42 percent of fourth-quarter revenue, declined 4.6 percent on a comp-store sales basis. The home-office category accounted for 26 percent of fourth-quarter revenue and had a 5.5 percent comp sales gain. The appliances category, which totaled 5 percent of fourth-quarter revenue, had a comp-store sales decline of 2.9 percent for the quarter. The services category accounted for 5 percent of fourth-quarter revenue and increased 3.9 percent on a comp-store sales basis.