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Best Buy Posts Modest Q1 Sales, Profits

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 down in early morning trading.

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 gave him confidence in achieving the
chain’s full-year financial goals.

Broken out by category, U.S. TV
sales declined by the low-single digits, as a high-single digit increase in
unit volume was offset 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 offset 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

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.