Best Buy recorded a 40 percent jump in net earnings for its fiscal third quarter, soaring to $80 million, compared with $57 million in the same three months last year.
"Our 40 percent increase in earnings feels simply extraordinary in light of the challenges in the quarter," said
chairman/CEO Dick Schulze. "Our Best Buy stores continued to gain market share, and our New York-area stores led the country with double-digit comparable store sales growth.
"Our Musicland stores met our targets despite reduced mall traffic, as our re-merchandising of Sam Goody began to take hold," Schulze said. "Also, our entry into Canada with Future Shop stores is off to a great start."
Schulze added that he believes market share continues to grow in many of the digital product categories.
Gross profit margins in the third quarter ended Nov. 25, climbed a hefty 310 basis points, to 21.6 percent, compared with the same period last year. On a pro forma basis, with the inclusion of Musicland results, gross profit margin increased 110 basis points, from 20.5 percent in the year-ago three months. The balance of the gross profit margin improvement reflects changes in product mix, improved inventory management and a stable promotional environment, said Best Buy.
The selling, general and administrative (SG&A) rate was 18.9 percent in the third quarter, up 270 basis points, compared with the year-ago period. The inclusion of Musicland's higher expense structure accounted for nearly two-thirds of the increase, adding 180 basis points to the SG&A in the third quarter.
As reported in mid-December, total sales for the third quarter climbed 27 percent, to $4.8 billion, up from $3.7 billion in the same three months in 2000. Comp-store sales rose 1.6 percent.
Best Buy revealed that December sales were off to a good start, with comp-store sales expected to be flat to up 2 percent in the fiscal fourth quarter. The retailer still expects earnings to grow at least 40 percent in the fourth quarter, and 23 percent to 25 percent for the current fiscal year.
Total Best Buy store sales grew 13 percent to $4.2 billion. Gross profit margin increased 190 basis points to 20.4 percent, reflecting a higher-margin product mix, lower markdowns and strong inventory management. SG&A expenses rose by 80 basis points, to 17 percent.
Musicland sales hit $420 million in the three months, compared with $424 million on a pro forma basis in the same quarter last year. Pro forma results are presented as though Musicland had been acquired at the beginning of the 2001 fiscal year.
Comp-store sales at Musicland were up 0.3 percent, despite declines in mall traffic and weakness in sales of prerecorded video. Gross profit margin declined by 330 basis points, to 33.7 percent, as a result of repositioning the product mix. SG&A increased 80 basis points to 37.7 percent. The chain had a quarterly operating loss of $17 million.
The third quarter also included $124 million in sales at Future Shop stores, Best Buy's entry into the Canadian retail market. This was only for the month of November. Comp-store sales were down double digits for the chain's Magnolia Hi-Fi stores.
For the nine months, Best Buy's total sales climbed 28 percent, to $12.6 billion, compared with $9.9 billion in the year-ago period. Comp-store sales were up 0.6 percent, as strength in CE products and entertainment software offset sales of desktop computers. Gross profit margin rose 270 basis points, to 22.4 percent, however SG&A increased 290 basis points to 19.5 percent.