MINNEAPOLIS -Slower consumer spending on higher-end items and a stepped-up promotional environment dragged down net earnings 27 percent at Best Buy during the fiscal third quarter ended Nov. 25. The retailer said net earnings reached $57.3 million during the third quarter, compared with $78.4 million in the same period last year.
Comp-store sales, however, increased 5.9 percent for the quarter, on top of the 9.2 percent rise in the same period in 1999. Total revenue jumped 20 percent in the third quarter, hitting $3.7 billion, compared with $3.1 billion in the year-ago three months.
"We are pleased with our 20 percent top-line growth and 5.9 percent comp-store sales increase for the quarter," said chairman/CEO Dick Schulze. "These market-share gains have historically positioned us to manage through difficult economic conditions. In addition, we anticipate that these gains will benefit the upcoming holiday season."
Significant start-up costs to open 40 new stores-including entry into the New York market and costs associated with the marketing of BestBuy.com-helped reduce operating margin to 2.3 percent of sales for the third quarter, down from 3.9 percent of sales for the corresponding quarter last year.
Due to an intensified promotional environment in the third quarter, gross profit margin was 18.5 percent, down 50 basis points from the 19 percent registered in the same quarter last year.
Beaten down by significant start-up costs, the BestBuy.com national holiday launch and the opening of 40 stores compared with 22 a year ago, SG & A hit 16.2 percent in the quarter, 110 basis points above the 15.1 percent registered in the year-ago period. Increased advertising expense represented a majority of the year-over-year increase.
"All of these investments give Best Buy access to a larger consumer base, both online and through our retail stores," said Schulze. "This will position us to leverage our infrastructure through higher sales volumes in the years ahead."
For the nine months, net earnings climbed 12 percent to $206.2 million, compared with $183.3 million in the year-ago nine months. Revenue was up 21 percent for the nine months, reaching $9.9 billion, compared with $8.2 billion in the same period last year.
SG & A for the nine months was 16.6 percent, up 70 basis points from the 15.9 percent recorded last year. Gross profit margin was 19.7 percent, down 30 basis points from 19.4 percent last year.