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Packaged Media Flat, Profit Down for Best Buy

16 Sep, 2008 By: Erik Gruenwedel

Double-digit comparable-store sales gains of video games offset undisclosed comp-sales declines of music CDs and movie DVDs as Best Buy Co. reported second quarter (ended Aug. 30) fiscal 2009 net income of $202 million, down nearly 20% from income of $250 million during the previous year period.

The Minneapolis-based No. 1 consumer electronics retailer said ongoing store enhancements and the rollout of its Best Buy Mobile in-store service contributed to the profit decline.

Entertainment software, which represented 16% of domestic revenues, compared to 17% last year, posted flat comp-store sales, compared to a 7% increase during the same period last year.

Best Buy does not report operating revenue or income from its CE, home office, entertainment, appliances and services business segments.

Total revenue for Best Buy increased 12%, spurred by new-store sales and comp-store sales increase of 4.2%. Domestic revenue grew 12% due in part to the inclusion of 124 new stores.

During a call with investors, it was disclosed that average HDTV prices fell 13% during the first half of the year. Michael Vitelli, EVP, customer operating groups, declined to speculate whether HDTV prices would continue to decline in the second half of the year.

“The minute we say we think and we plan that prices go down this much, then somebody else says, ‘gee, we have to do better than that,’” Vitelli said. “It becomes a self-fulfilling prophecy in the industry.”

Analysts contend excess supply of HDTVs entering the fourth quarter could trigger price wars as retailers attempt to shed inventories.

“We are increasingly concerned that excess inventory in the LCD TV supply chain and a more-challenging demand environment will foster increased promotions,” said UBS Securities analyst Brian Nagel, in a note.

The price declines could bode well for Blu-ray Disc as Best Buy, Circuit City Stores and other CE retailers have begun to accelerate special offers for home theater systems and HDTVs that include a Blu-ray player.

Indeed, Circuit City this week offered a Samsung 5.1 channel Blu-ray component system, including Blu-ray player, for $749.99 — $200 off the SRP.

In Southern California, Ken Cranes Big Screen Headquarters offered $400 in savings for the purchase of a 50-inch Panasonic HDTV with a Blu-ray home theater system for $1,998.

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