Best Buy Q1 Profit Falls 15%16 Jun, 2009 By: Erik Gruenwedel
Despite the departure of major rival Circuit City, the drop in consumer spending in consumer electronics and entertainment contributed to Best Buy Co. June 16 posting a drop in profit for the first quarter ended May 31.
The company posted income of $153 million, down 15% from income of $179 million during the previous year period.
Same store sales (open at least 12 months) fell 4.9% in the quarter, spearheaded by a 20.6% decline in entertainment software sales, which includes DVD, Blu-ray, video games and music CDs.
Mike Vitelli, VP of consumer electronics and product management, said the exit of Circuit City would help Best Buy see variable market share gains in movies, games and music despite packaged media being “ubiquitously available” everywhere.
“We’re getting a store-front proportionate share of sales,” Vitelli said in a call with investors.
Indeed, Best Buy this week offered 30% price cuts to more than 800 Disney DVD titles online at www.BestBuy.com/dvdsale.
Sales of flat-panel high-definition televisions remained flat while sales of laptop computers and Geek Squad in-home repair service increased 9.5% and 1.7%, respectively.
Best Buy also attributed some of the quarterly decline to reduced foot traffic in stores due in part to negative year-over-year comparisons with May 2008 when consumers had received individual federal economic stimulus checks in amounts from $300.
The Minneapolis-based No. 1 consumer electronics retailer maintains a 22% market share in the category, according to Deutsche Bank research, compared to 14% for No. 1 retailer Wal-Mart.
Stacey Widlitz, analyst with Pali Research, remained nonplussed regarding what she characterized as “overblown expectations” regarding the $11 billion in sales up for grabs following the March 8 shuttering of Circuit City.
“Simply put, Circuit City’s demise was a help but not enough to offset industry pressure,” Widlitz said in a note.
Analysts said Best Buy gained about 2% in consumer electronics market share in the quarter, larger in select product categories.
Overall revenue topped $10 billion, up more than 12% from $8.9 billion last year, driven largely by international sales and the net addition of 185 new stores in the past 12 months.