Best Buy reports strong fourth-quarter sales

Best Buy reports strong fourth-quarter sales
By Jonathan Birchall in New York
Copyright The Financial Times Limited 2010
Published: March 25 2010 14:01 | Last updated: March 25 2010 14:01
http://www.ft.com/cms/s/0/28ca6df8-3810-11df-9e8e-00144feabdc0.html


Best Buy, the world’s largest consumer electronics retailer, on Thursday reported strong sales growth in its fourth quarter, as it gained market share in the US following the demise of its former competitor, Circuit City.

The electronics chain saw comparable-store sales at its more than 1,000 US stores gain 7.4 per cent during the three months ending on February 27, despite a year-on-year drop in prices for flat-screen televisions and notebook computers.

The retailer said it believed it gained 2.3 per cent of market share across its categories in the US, as it battled Walmart, its discount rival, and others for Circuit City’s former customers.

Overall, Best Buy reported a 7 per cent increase in comparable-store sales, while total revenues increased 12 per cent to $16.6bn. Net earnings rose to $779m from $570m a year ago, when results were affected by restructuring and impairment charges. Its earnings per diluted share rose 13 per cent to $1.82 on an adjusted basis.

At its US stores, the retailer said it had seen a low double-digit comparable-store sales increase in notebook computers and a high single-digit increase in comparable-store sales in flat-panel televisions, although the volume gains were offset by lower average unit prices.

Comparable sales of mobile phones also recorded a low double-digit percentage increase, and similar declines in sales of music and movies.

US revenues increased 11 per cent to $12.6bn, while its international business revenues rose 15 per cent to $4bn, supported by the impact of the weaker US dollar. Comparable sales at its international stores, which include its 50 per cent interest in the European joint venture with the UK’s Carphone Warehouse, rose 5.5 per cent.

Best Buy Europe reported a comparable-store sales gain of approximately 4 per cent while its Chinese Five Star and Best Buy stores experienced an approximately 34 per cent comparable-store sales gain.

Despite the strong sales, Best Buy’s profitability suffered from selling more lower-margin notebook computers in the US. It saw a 30 basis point decline in its US adjusted operating profit rate to 8.7 per cent, despite lower business costs. Two years ago, the rate was 9.3 per cent.

Jim Muehlbauer, chief financial officer, said that over the past year the retailer “made a deliberate effort to profitably acquire new customers with the purpose of introducing them to the benefits of our connected world strategy”.

However in the coming year, he said the company planned “to capitalise on these actions to create stronger relationships with our customers and improve profits.”

For the coming year, Best Buy is forecasting an increase in revenues of 5 to 7 per cent, to $52bn-$53bn. Comparable-store sales are expected to increase by 1-3 per cent.

Its plans include 50 to 55 new Best Buy large-format stores, as well as 75 to 100 small format stores, mostly part of its Best Buy Mobile stand-alone store network in the US. It is also planning to open 10 to 15 new Five Star stores in China.

Its financial targets include improving its operating income rate, and a 10 to 14 per cent increase in earnings per share to $3.45 to $3.60.

Best Buy’s shares were up more than 7 per cent at $44.43 in pre-market trading in New York.