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Best Buy Defends Declining Profits

19 Jun, 2007 By: Erik Gruenwedel

Sluggish flat-panel HDTV revenue and increased sales of lower-margin items resulted in Best Buy Co. posting first quarter (ended June 2) income of $192 million, down 18% from $234 million during the same period last year.

Revenues for the quarter, driven by 230 new stores and a 20% increase in online transactions, increased about 14% to $7.9 billion, compared to $6.9 billion last year.

Entertainment packaged media sales, which includes video game hardware and software, increased 1.3% over the same period last year due in part to undisclosed sales declines of DVD movies and music CDs.

Same-store comparable sales (open at least 12 months) in the United States rose 1.7%, compared to 4.6% the same quarter last year. Worldwide comp sales increased 3%, compared to 5% last year.

“In the quarter we had to navigate one of the largest television transitions, if not the largest,” said Brian Dunn, Best Buy president and COO, in an investor call. “It was the timing of the way manufacturers all tried to move through their skews and get their new skews into the market as soon as possible.”

Dunn said four major TV manufacturers transitioned HDTV product from 720p to 1080p at the same time, which he said represented 80 product skews.

Executives said there was no indication manufacturers were dumping 780i models in the market in order to make room for more expensive 1080p units.

Dunn said flat panel HDTV domestic household penetration was at 20%, which he said translated into millions of potential HDTV customers.

Best Buy will roll out 300 Apple-branded in-store concepts in select locations by the holiday shopping period.

Brad Anderson, vice chairman and CEO of Best Buy Co., said that despite falling short of financial projections, the company's business strategy going forward is sound.

“Earnings per share don't always correlate with the health of the business,” Anderson said.

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