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Best Buy in Expansion Mode in 2006

9 Feb, 2006 By: Holly J. Wagner

Best Buy shares leapt more than 8% — more than $4 — in early trading today after the company said it will open 90 new stores in the coming year and raised its earnings outlook for the fiscal 2006 fourth quarter and year ending Feb. 25.

Best Buy expects 75 to 80 new U.S. stores to boost its domestic retail square footage to 34 million square feet by the end of fiscal 2007, from 31 million square feet at the end of fiscal 2006. Three new Canadian stores will push square footage to 3.8 million square feet, up from 3.6 million square feet today. The company expects to open the majority of the new stores in its fiscal third quarter, so that the new stores are open in time for the holiday selling season.

More than half of the new stores will be in the 30,000-square-foot format, with the remainder to be split between the 20,000-square-foot and 45,000-square-foot formats. The majority of new stores are scheduled for markets where Best Buy has an established presence. The new stores will create 9,000 jobs, according to the company, which also expects to relocate 10 to 15 U.S stores and remodel an unspecified number of others during the year.

This year the company will focus on “enhancing its home theater experience” by expanding the assortment of digital TVs and adding more Magnolia Home Theater store-within-a-store locations; and adding its branded business support sections to more than 120 U.S. stores.

Brian Dunn, who becomes the company's president and chief operating officer later this month, said, “We've chosen these two critical growth areas so we can take advantage of the enormous energy around digital TVs while building our capabilities to serve small businesses, which represent a relatively new market for us.”

There are no plans to open stand-alone Magnolia Audio Video or Geek Squad stores during the year, and the company now expects to close its acquisition of Pacific Sales Kitchen and Bath Centers in the first half of the calendar year.

The chain sold 20% more gift cards in the holiday season than the year before, and January redemptions helped to drive the quarter's increased sales. Hit items were flat-panel TVs, portable audio players and video games.

For the quarter the company expects earnings from continuing operations of $1.25 to $1.30 per share, a 23% hike from the 2005 fourth quarter.

The estimate was up from previous guidance anticipating $1.06 to $1.16 per share compared to $1.04 per share in the 2005 quarter.

The projection assumes a comp-store sales gain of 6% to 7%, up from the range of 3% to 5% previously estimated. Last month the company reported a comp-store sales gain of 5.8 percent for December.

For fiscal 2006, Best Buy expects earnings per share in the range of $2.24 to $2.29, up 29% from $1.75 per share for fiscal 2005.

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