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Best Buy Q3 Profit Surges 77%

15 Dec, 2009 By: Erik Gruenwedel

In a pleasant turnaround for the nation’s No. 1 consumer electronics retailer heading into the key Christmas shopping season, Best Buy Co. Dec. 15 reported third-quarter (ended Nov. 28) net income of $227 million versus net income of $52 million during the previous-year comparable period.

Same-store sales (open at least 12 months) in the United States increased 4.6%, with revenue up 8.9% to $8.9 billion, from $8.2 billion last year.

Entertainment software, which includes DVD, Blu-ray and video games, represented 16% of revenue, down from 19% last year.

The results do not factor in Best Buy’s proactive push of Blu-ray content through the holidays, including working with studios in select concept stores, and offering new-release DVD titles for under $10.

That said, the Minneapolis-based retailer, which has seen increased competition from Wal-Mart and Amazon following the demise of Circuit City, entered the post-Thanksgiving retail season needing good news.

In a recent price comparison of 50 overlapping non-TV products, which included Blu-ray Disc players, Pali Capital analyst Stacey Widlitz found that Wal-Mart and Amazon lowered retail prices 3% and 1.3%, respectively, while Best Buy increased prices 2.1% since a similar price comparison in early November.

Indeed, Best Buy acknowledged, in part, the influx of competitors, saying fourth-quarter margins would fall below projections due to rampant discounting on popular holiday items such as laptops, flat-panel televisions and Blu-ray players.

Oppenheimer & Co. analyst Brian Nagel said price points on HDTV have fallen dramatically.

“Right now, the biggest concern among investors [in the near term] is margins,” Nagel told MarketWatch, adding that he had confidence in Best Buy’s management going forward.

The analyst said Best Buy could be helped with a product cycle, which he said would include Web-enabled, embedded TVs and 3D — all slated to be front-and-center at next month’s Consumer Electronics Show in Las Vegas.

“I think three-dimensional TVs will be the next major product cycle,” Nagel said.

Nonetheless, the news sent Best Buy shares tumbling more than 8% in midday trading.


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