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Best Buy Lowers Forecasts

2/15/2008 08:38:00 AM Eastern

Minneapolis — Best Buy lowered its fiscal year earnings and same-store sales forecasts based on lower-than-expected revenue growth in fiscal January coupled with its near-term outlook, but restated its commitment to open more stores in the United States and internationally.

Best Buy said today that it now expects its fiscal 2008 earnings per diluted share to be $3.05 to $3.10 for the fiscal year, which concludes on March 1, 2008, an approximately 10 percent increase compared with its EPS of $2.79 for the prior year.

The chain previously had provided earnings guidance of $3.10 to $3.20/share for fiscal 2008.

Best Buy reported a 79 percent increase in operating income to $351 million for its fiscal third quarter, ended Dec. 1. Net revenue rose almost 15 percent. The chain will report fiscal fourth-quarter results on April 2.

“Our December revenue results were in line with our expectations. Soft domestic customer traffic in January, coupled with our near-term outlook, now indicate that our fourth-quarter revenue will fall short of our planned targets,” said Brad Anderson, vice chairman/CEO.

The company, which reported a comp-store sales gain of 1.5 percent for fiscal December, now expects comp-store sales to decline modestly for the fiscal fourth quarter, reflecting changes in the macro environment. As a result, the company is projecting nearly $40 billion in revenue for fiscal 2008, including an annual comp-store sales gain of 2.5 percent to 3 percent, compared with previous guidance of approximately 4 percent.

The company now anticipates lower revenue for the fiscal fourth quarter in categories such as home theater, MP3 devices, digital imaging and video gaming (which experienced industrywide temporary inventory shortages in the United States during January), compared with its prior expectations. These volume reductions are expected to be partially offset by higher-than-expected volumes from notebook computers, which are benefiting from an expanded assortment and continued customer interest in mobile computing.

“The macroeconomic environment grew more challenging after the holidays,” said Jim Muehlbauer, interim CFO. “Our post-holiday results are not going to be what we originally expected. Yet our strategic results are favorable; our most recent data shows that customer satisfaction improved, and we built market share in key categories such as home theater, computing and gaming.”

Muehlbauer added, “Our optimism and our point of view about the future has not changed, and we continue to operate our business with a long-term perspective. That perspective guides our decision to continue expanding our footprint globally with new stores. Furthermore, we anticipate returns on our new store investments to be similar to what we've seen historically.”

The company said that it plans to open approximately 130 to 160 new stores globally during its 2009 fiscal year in order to increase customer convenience and to boost market share while providing the latest elements in store design. The company said it expects its total retail square footage to grow 10 percent to approximately 51 million square feet by the end of fiscal 2009.

Anderson said, “We're consciously choosing not to pull back on our investments, even in a difficult economy, because we are making the bet that the opportunities are rich, over the longer term. When the U.S. economy regains its momentum, we believe that our results will show these to be good investments.”

The company's growth plans also include operational enhancements and expansions into new categories or businesses where consumers have shown interest.

“We are extending our Best Buy Mobile experience, through our partnership with The Carphone Warehouse Group, to the majority of our U.S. Best Buy stores over the next 18 months. We want more customers to enjoy improved service and selection in mobile phones,” said Brian Dunn, president and COO.

“We have achieved No. 1 retail market share in the consumer laptop market with the best assortment and employees in the industry. Collaborative relationships with all of our vendors — including HP and Toshiba — have helped us dramatically improve our computing customer experience, resulting in share increases and continued growth. We'll add to that strength in fiscal 2009 as we expect to operate 600 stores with Apple computer products and services as well as continuing our relationship with Dell. We'll also reset the GPS area to maximize the customer experience. Last, to continue to foster customer loyalty, we intend to enhance our Reward Zone program benefits for our best customers, add gaming and music experiences in the center of our stores, enhance our Web sites and test several new categories,” Dunn said.

In fiscal 2009, the company expects to open 85 to 100 new Best Buy stores in the United States. Best Buy estimates that approximately 75 percent of these new stores will be in the 30,000-square-foot format. It also anticipates 20 percent of the new stores will be in the 45,000-square-foot format with the balance in the 20,000-square-foot format. The majority of the new stores are projected to be opened in markets where Best Buy already has an established presence. In addition, the company expects to relocate four U.S. Best Buy stores during fiscal 2009. The majority of the new U.S. stores are scheduled to open periodically throughout the company's first three fiscal quarters so that the new stores are open in time for the holiday shopping season.

The company also commented that it plans to open five to 10 additional Pacific Sales Kitchen and Bath Centers over the coming fiscal year. The stores, opening in western states, will offer convenient locations for customers and career opportunities for employees. The company currently operates 17 Pacific Sales stores, which have an average of approximately 30,000 square feet.

In total, Best Buy estimates that its U.S. retail square footage will increase to approximately 40 million square feet by the end of fiscal 2009, compared with approximately 37 million square feet projected for the end of fiscal 2008.

Best Buy's fiscal 2009 plan includes the addition of approximately 40 to 50 new stores in its international segment, the chain said, in China and Canada.

Best Buy's fiscal 2009 store expansion plans are expected to bring more than 12,000 new retail management, sales and services positions to communities in its markets, and expects to employ more than 150,000 people worldwide by the end of fiscal 2009.