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Best Buy Posts Modest Q1 Sales, Profit

6/22/2010 10:08:00 AM Eastern
MINNEAPOLIS — Best Buy reported moderate sales and profit gains for its fiscal first quarter, ended May 29.

The results, which reflect higher expenses and lower TV revenue in the U.S., came in below company expectations, sending its share price downward the morning of the announcement.

Total revenue rose 7 percent to $10.8 billion and net earnings edged up 1.3 percent to $155 million. Comp-store sales rose 2.8 percent on a year-ago decline of 6.2 percent.

In the U.S., new store openings helped spur net sales 5 percent to $7.9 billion, while pricier average purchases drove comp sales up 1.9 percent.

In a statement, CEO Brian Dunn said the “excellent performance” of Best Buy’s mobile operation, the quarter’s “many positive indicators,” and coming changes in the way the company presents and sells connected devices and services gives him confidence in achieving the chain’s full-year financial goals.

The changes, which include new “connectivity centers” in stores and an increased emphasis on mobility and connectivity within the home theater and computing departments, will begin rolling out this month, Dunn said. 

Broken out by category, U.S. TV sales declined by the low-single digits, as a high-single digit increase in unit volume was off set by falling retail prices. Best Buy said the price declines moderated during the quarter.

In contrast, notebook computers, mobile phones and appliances led the quarter with low-double-digit comp gains, which were partially off set by comp declines in gaming, music and movies.

Online revenue rose about 26 percent during the three-month period, the company reported.

Based on its performance, Best Buy believes its market share increased by about 100 basis points during the three months, ended April 30, although the rate of share growth has slowed from the year-ago period when Circuit City was exiting the marketplace.

Chief financial officer Jim Muehlbauer described the company’s first-quarter performance as “below expectations,” but echoed Dunn in expressing confidence that “the strategic investments we are making will deliver more robust connected solutions for customers and support increased margin expansion during the fiscal year.”

Revenue from Best Buy’s international operations rose 11 percent to $2.9 billion, buoyed by favorable currency exchange rates, new store openings and comp-store gains of 6.3 percent. Excluding the impact of currency fluctuations, revenue increased 1.4 percent.

Broken out by region, comp-store sales rose 5 percent in Europe, declined 2 percent in Canada, and rose 30 percent in China due to government stimulus programs, economic growth and “strong store execution.”

Selling, general and administrative expense rate (SG&A) was 23 percent of revenue, an increase of 110 basis points year over year, reflecting new store openings, expanded investment in key growth initiatives, the timing of discretionary expenditures, and the impact of exchange rate fluctuations and other non-recurring items.
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