Minneapolis, Minn. - Fueled by 76 new Best Buy stores and the inclusion of Future Shop revenue, Best Buy's total sales for its fiscal 2003 second quarter ended Aug. 31 grew 20 percent to $5 billion.
But minus the new additions, comparable store sales company-wide rose a more modest 2 percent, reflecting continuing declines at the Musicland and Magnolia Hi-Fi chains and slower summertime traffic.
The company also announced that it is taking a $348 million after-tax goodwill impairment charge against its first quarter results that reflects the fair value decline of the Musicland and Magnolia acquisitions.
Broken out by chain, Best Buy stores grew 14 percent for the quarter to $4.26 billion, while same store revenue rose 2.7 percent, buoyed by sales of video game and DVD software and digital TVs and cameras. Those gains were partially offset by declines in desktop PCs and major appliances, with the latter falling some 12 percent year-over-year according to estimates by CIBC analyst Dan Wewer.
At Magnolia, total sales slipped 3 percent to $380 million for the quarter while comps slid 3.4 percent, due to continued softness in sales of prerecorded music.
Best Buy doesn't break out sales at Magnolia, but allowed that comps sagged by 'the low single digits' at the hi-end A/V chain.
Business remained robust north of the border, however. Total sales at Future Shop and at Best Buy's sole Canadian outpost rose 13 percent to $340 million while comps grew 6.9 percent. The company attributed the strong results to the addition of 12 new stores plus strong demand for DTV, DVD hardware and software, and digital cameras.
Despite the slowdown, sales in August stabilized from the dramatic downturn the company reported for July. Said vice chairman/CEO Brad Anderson, 'Comparable store sales during August were fairly steady, as were traffic levels in our stores.'
According to CIBC's Wewer, sales were sustained in part by deep discounts on new music and DVD releases, extended credit promotions of up to 18 months, and positive consumer response to Best Buy's private label Matrix PCs and new Mitsubishi big screen TV line.
What's more, the company is maintaining its second quarter earnings projections of 17 cents to 19 cents per share. Explained CFO Darren Jackson, 'In July, we saw a significant change in consumer behavior. We already have begun to pare back expenses in reaction to slower sales growth.'
Indeed, Best Buy attributed slower sales growth for its $348 million impairment charge. It said it based the fair value decline of Musicland on 'the current retail environment and the uncertainty associated with future trends in prerecorded music products.' Magnolia, meanwhile, is beset by 'an economic slowdown in the Pacific Northwest and reduced demand for high-end consumer electronics generally,' the company said.