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Best Buy Q1 Reports Net Earnings Up 38%

Minneapolis — Best Buy reported net earnings of $234 million for its fiscal first quarter, ended May 27, representing a 38 percent increase from $170 during the prior year first quarter.

Total revenue for the quarter increased 14 percent to $7 billion, fueled by new store openings and a comp-store sales gain of $4.9 percent, the chain reported. Best Buy’s domestic and international segments reported comp-store sales gains of 4.6 percent and 7.1 percent, respectively.

“These results can only come from an engaged and energized group of employees,” said Brad Anderson, vice chairman/CEO of Best Buy, in a prepared statement. “Our employees showed amazing focus in improving our cost structure, but never lost sight of our customers’ needs, as evidenced by our top-line performance.

Best Buy reported that the comp-store sales gain was driven by an increase in the average transaction size, as the chain’s revenue mix “continues to reflect a shift toward higher-ticket items.” The chain said that consumers made more purchases online as Best Buy “continues to add features and capabilities to its Web sites.” The total first-quarter online revenue grew more than 30 percent vs. the same quarter last year, the retailer reported.

The gross profit rate for the quarter was 25.4 percent, down slightly from the prior year’s first quarter of 25.5 percent, due to an increased competitive environment and higher year-over-year product costs in appliances, primarily due to steel. Best Buy said that the decline was partially offset by benefits related to growth in the computer services business.

Best Buy’s SG&A expense rate was down 1.1 percent from last year’s first quarter, to 20.5 percent. Darren Jackson, finance executive VP/chief financial officer, said employees exceeded expectations in cost cutting during the quarter.

Best Buy’s domestic segment — comprised of U.S. Best Buy, Geek Squad, Magnolia Audio Video and Pacific Sales stores — reported first-quarter revenue of $6.2 billion, an increase of 12 percent. The revenue increase included a comparable store sales gain of 4.6 percent, the opening of new stores and the acquisition of Pacific Sales. U.S. Best Buy stores reported a comp-store sales gain of 4.5 percent. The U.S. Best Buy revenue results were bolstered by growth in online revenue of approximately 35 percent.

Pacific Sales, a retailer of high-end home improvement products, contributed revenue of $64 million for the period during the quarter that it operated under Best Buy ownership. Magnolia Audio Video reported revenue of $37 million and a comp-store sales gain of 21.7 percent, noting increased consumer interest in flat-panel TVs and audio and video products.

In the quarter, the company expanded the presence of Best Buy for Business to 145 stores, up from 119 stores at fiscal 2006 year-end. The company now has 340 employees who are Microsoft-certified professionals. Additionally, the company added the Magnolia Home Theater store-within-a-store experience to 20 Best Buy stores in order to enhance the customer experience in the growing flat-panel TV and home theater category. The company employs nearly 1,600 home theater installers, who provide customers with end-to-end home theater solutions.

During the first quarter, the company opened 12 U.S. Best Buy stores, including three 45,000-square-foot stores, eight 30,000-square-foot stores and one 20,000-square-foot store. In addition, the company’s Canadian operations opened one Future Shop store and one Geek Squad store. At the end of the first quarter, the company operated 754 Best Buy stores, 20 Magnolia Audio Video stores, 14 Pacific Sales showrooms and 12 Geek Squad stores in the United States. It also operated 119 Future Shop stores, 44 Best Buy stores and six Geek Squad stores in Canada. For the trailing 12 months, the company opened 119 new stores (including 14 acquired Pacific Sales showrooms) and closed two stores.