Best Buy Posts Higher Sales, Earnings

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Minneapolis - Best Buy reported higher net earnings and revenue for its second fiscal quarter, ended Aug. 28.

Net earnings were $254 million, up from the prior year's $158 million. Revenue also grew to $11.3 billion, from $11 billion in last year's second quarter.

Comp-store sales were basically flat, down 0.1 percent. During last year's fiscal second quarter comp-store sales dropped 3.9 percent.

In a prepared statement, Brian Dunn, CEO, said, "We're still in the early stages of our Connected World strategy, but this quarter's results give me continued confidence that we're making progress in driving value through growth in connections for our customers, vendors and shareholders."

Dunn added he was impressed with Best Buy's performance "in a quarter with constrained consumer spending."

Best Buy said in its statement that it continues to advance its Connected World strategy to sell more mobile phone, broadband and TV connections to customers through the evolution of its selling model supported by the completion of various in-store projects.

During the fiscal second quarter, the company improved the home-theater and mobile computing experiences in its stores in an effort to better demonstrate and educate customers how technology can empower them to connect to the content, networks and people they care most about --anywhere, at any time, on any device, the retailer noted.

Best Buy increased sales from connection solutions and attached connections at a low double-digit rate for customers purchasing connectable devices such as mobile phones, computers, and TVs during the fiscal second quarter. The company noted that the growth in connections drove a meaningful increase in its domestic gross-profit dollar growth for the quarter.

While Best Buy Mobile comprises the largest share of the company's current connections business, its mobile computing and TV categories experienced strong connections growth during the quarter.

In reviewing the numbers, the increase in revenues in the quarter reflected the impact of net new stores in the past 12 months and essentially flat comparable store sales. The domestic segment's fiscal second-quarter revenue totaled $8.4 billion, an increase of 2 percent vs. the prior-year period. This increase was driven by the addition of net new stores, partially offset by a comp-store sales decline of 1 percent.

Best Buy reported that the comp-store sales results were driven primarily by a decline in customer traffic, partially offset by an increase in average ticket. The domestic segment experienced a low double-digit comp-store sales increase in mobile phones, a high single-digit comp-store sales increase in appliances and a mid single-digit comp-store sales increase in mobile computers, which includes tablet computers.

These gains were more than offset by comp-store sales decreases in TVs and entertainment hardware and software. The company noted that the low-double digit comp-store sales decline in TVs was driven by a low double-digit decline in unit sales and moderating price declines.

The decline in TV unit sales was driven primarily by weaker overall consumer demand in the TV industry as well as the digital conversion that occurred during the second quarter of fiscal 2010. The company also noted that its online revenue increased approximately 16 percent in the second fiscal quarter vs. the prior-year period.

Best Buy believes that its domestic market share declined 50 basis points vs. the comparable period last year for the three months, ended July 2010. The decline was primarily driven by the impact of lost traffic associated with constrained inventory during the initial iPad launch, which adversely impacted traditional mobile computing traffic; the continued decline in entertainment software; and moderating market share gains in home theater due to last year's digital conversion.

The company noted that it continues to expect to increase its market share for the full fiscal year.

The domestic segment gross profit rate for the fiscal second quarter was 25.8 percent, compared with 24.3 percent for the prior-year period, due primarily to the growth and improved gross profit rate of Best Buy Mobile and continued lower promotional and loyalty program costs driven by changes in key categories like home theater, portable electronics and appliances, the chain said.

Also during the fiscal second quarter in its domestic segment, it reported operating income of $407 million, an increase of 29 percent when compared with operating income in the prior-year period.


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