Best Buy Ups Profit Despite TV, Entertainment Declines14 Sep, 2010 By: Erik Gruenwedel
Best Buy Co. Sept. 14 reported second-quarter (ended Aug. 28) net income of $254 million, up 60% from net income of $158 million during the previous-year period despite ongoing recessionary pressure on consumer spending.
The Minneapolis-based consumer electronics retailer said quarterly domestic same-store sales declined 1.4%, with entertainment software and hardware sales falling 10.9% and TV sales declining 6.7%.
Same-store sales in the entertainment category — which includes CDs, DVDs/Blu-ray Discs and video games — actually were an improvement on a decline of 23.4% during the same quarter last year.
Key drivers in the quarter focused on connected devices in the home such as Internet-connected TVs, Blu-ray Disc players, mobile phones and computing, the latter including tablet computers such as the Apple iPad. Best Buy said it will expand availability of the Apple iPad to nearly 1,100 domestic stores beginning Sept. 26.
“We are going to see mobile computing over the next several years become a mobile broadband technology-based environment,” Mike Vitelli, EVP, president-Americas, said in a call with analysts.
Vitelli said the ability to sell in-home high-speed broadband connections via third-party vendors directly in stores represents a “significant opportunity” for Best Buy going forward. Indeed, Best Buy plans to increase floor space for cable representatives from Comcast, Time Warner Cable and DirecTV while reorganizing DVDs/Blu-ray Discs and CDs.
“The CD section, in particular, will shrink in space allotment,” said CEO Brian Dunn.
Best Buy, like other CE retailers, is pushing smartphone sales and service plans, which include the ability to stream and purchase movies on demand.
Walmart Sept. 14 said it will bow a proprietary mobile phone service, dubbed “Walmart Family Mobile Plan,” offering lower cost phones for monthly fees through T-Mobile instead of traditional multiyear service plans.
Last month Radio Shack cited sales of smartphones and service contracts at its stores and kiosk locations as key drivers of revenue and net income in its most recent financial period.
Best Buy opened its 100 Best Buy Mobile standalone store in the period to go along with 1,100 stores that carry the retailer’s proprietary mobile phone service (Best Buy Mobile), which represents a 5% share in the mobile phone market.
Other opportunities include the retailer’s recently launched “Best Buy CinemaNow” digital entertainment platform that allows consumers to buy and rent movies and music from the Internet. Despite numerous references to connected devices, Best Buy executives did not mention CinemaNow, underscoring the nascent service’s revenue contribution, according to analyst Ralph Schackart with William Blair & Co., in Chicago.
“It was hard to pinpoint a specific callout for CinemaNow on the call as it relates to the [Sonic Solutions’] RoxioNow-powered service, since it is such a small product category/service for Best Buy at this stage,” Schackart said in a note.
Dunn said Best Buy remained in the early stages of its ‘connected world’ strategy, but the quarter's results give him continued confidence that the retailer was making progress in driving value through growth “in connections for our customers, vendors and shareholders.”
Overall domestic revenue increased nearly 2% to $8.4 billion, compared with $8.2 billion last year.