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Best Buy Posts Lower Profits, Higher Sales

Minneapolis – Best Buy reported lower net earnings and comp-store
sales, but higher net revenue for its fiscal second quarter that ended Aug. 29.

Compared with the prior year’s quarter, net revenue was up 12
percent to $11 billion, up from $9.8 billion. Net earnings were $158 million,
down 22 percent from the prior year’s $202 million. Comp-store sales were down
3.9 percent, compared with an increase of 4.2 percent in the prior year.

The revenue increase reflected the inclusion of Best Buy Europe’s
revenue and gains from the addition of 170 net new stores in the past 12 months,
the chain said.

Revenue gains were partially offset by a comp-store sales decline
of 3.9 percent and the unfavorable impact of foreign currency fluctuations.

The domestic segment’s fiscal second-quarter revenue totaled $8.3
billion, an increase of nearly 2 percent vs. the prior-year period. Revenue
growth from the net addition of 104 stores in the past 12 months was partially
offset by a comp-store sales decline of 3.1 percent.

Traffic in the fiscal second quarter increased slightly over the
prior-year period but was offset by a slight reduction in the average ticket.

Comp-store sales gains in notebook computers, mobile phones and
flat-panel TVs were more than offset by decreases in gaming, digital cameras,
music and movies. The company noted that domestic comp-store sales in
flat-panel TVs increased by the mid-single digits as unit increases more than offset
declines in the average selling price, the chain reported.

The company said it believes its domestic segment gained strong
market share and that these gains accelerated in the quarter, growing
approximately 270 basis points for the three months ending July 31, as compared
with the prior-year period.

Best Buy said that in the back-to-school shopping season, “strong
store execution and popular bundled solutions … allowed the domestic segment
to capitalize on changes in the competitive environment.”

Market share gains were led by flat-panel televisions, digital
imaging and notebook computers. The company also noted that it believes it
continued to gain market share in mobile phones, as customers responded to Best
Buy Mobile’s selection.

For the fiscal second quarter, Best Buy reported operating income
of $280 million, or 2.5 percent of revenue. The domestic segment reported
fiscal second-quarter operating income of $315 million, flat when compared with
the prior-year period despite a comp-store sales decline.

“Our revenue growth modestly exceeded our expectations for the
first half, and customer traffic patterns have started to indicate signs of
stability,” said Jim Muehlbauer, Best Buy’s executive VP of finance and chief
financial officer.

“Our optimism is balanced by our view that overall consumer
spending will remain under pressure given the expected continued softness in
the economy and by the fact that most of our earnings are still ahead of us in
the holiday selling season,” he noted.