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Best Buy Q1 Profits Fall 12%

Minneapolis – Increased promotions,
higher transportation costs and disrupted digital imaging shipments contributed
to soft sales and falling profits during Best Buy’s first fiscal quarter.

Net earnings declined 12.3 percent
to $136 million for the three months, ended May 28, on net revenue of $10.9
billion, a 1.4 percent gain. Comp-store sales slipped 1.7 percent company-wide.

In the U.S., revenue was essentially
flat at $7.9 billion while comp-store sales fell 2.4 percent. Operating income
declined 21 percent to $234 million, compared with a 10 percent decline
company-wide to $282 million.

U.S. gross profit declined 3 percent
to $2 billion, compared with a 6 percent increase overseas to $798 million, as
the domestic gross profit rate declined by 60 basis points. Best Buy attributed
the drop to increased promotions to drive improved revenue; industry-wide
supply interruptions of digital imaging products due to the earthquake and
tsunami in Japan; higher transportation costs; and a large, annual vendor
rebate in the first quarter of 2010 that impacted year-over-year comparisons.

Partially offsetting the declines
was a 28 percent spike in cellphone sales, a 12 percent increase in online
revenue, and a 20 percent increase in subscriptions and other “connection”
sales in the U.S. The company also pointed to strength in mobile computing and
tablets, as well as e-readers, appliances and warranty, and repair and
installation services, but reported weakness in TV, digital imaging and
physical media.

Broken out by category, domestic
comp-store sales for the newly combined computing and mobile phone categories
rose 4.7 percent, to 40 percent of the mix; majap comp sales rose 2.9 percent,
to 6 percent of the mix; CE comps, including TV and digital imaging, declined
6.8 percent, to 35 percent of the mix; comps for entertainment, including music
and movies, fell 13.1 percent, to 12 percent of the mix; and services comps
remained flat at 6 percent of the mix.