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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.