Best Buy Q3 Boosted by New Concept Stores15 Dec, 2004 By: Holly J. Wagner
New concept stores helped Best Buy to a 21 percent increase in profit for the third quarter ended Nov. 27 compared to the same quarter last year, the company reported today.
The consumer electronics giant credited its 67 “segmented” stores, which launched in early October to target specific consumer groups, with a comp-store sales gain more than double that of other U.S. Best Buy stores. Their gross profit rate was also higher than the rate of other U.S. Best Buy stores because of a more profitable revenue mix, and the launch costs were lower than expected.
“This initiative has taken hold inside our organization, thanks to the dedication of the customer centricity team over the past two years. We believe that their work will gain momentum now that we have brought together into one team all of the areas of our organization that have been driving this important work,” said vice chairman and CEO Brad Anderson. “Our commitment to this initiative and our excitement about the outcomes has never been greater.”
The favorable rollout and the stores' holiday results are expected to help the company in determining rollout plans for fiscal 2006 conversions, which are expected to be announced along with fourth-quarter earnings March 30, 2005.
The chain's third-quarter revenue increased 10 percent, to $6.65 billion, compared with revenue of $6.03 billion for the third quarter of fiscal 2004. The revenue increase included the addition of 75 new stores in the past 12 months and a comp-store sales gain of 3.2 percent. Net earnings were 45 cents per share, or $148 million, an increase of 22 percent compared with 37 cents per share, or $122 million, for the quarter ended Nov. 29, 2003.
Executives blamed a “slightly more promotional environment” this year for the minor dip in gross profit rate to 24.5 percent of revenue from the comparable 2003 quarter. Reward Zone, Best Buy's customer loyalty program, launched in July 2003, helped revenue growth but reduced the gross profit rate by 0.6 percent of revenue, double last year's rate, reflecting increased membership.
Executives also updated earnings guidance for fiscal 2005 to reflect anticipated revenue of $27.5 billion, an increase of 12 percent, assuming the opening of 77 new stores, a 4 percent to 5 percent gain in comp-store sales for the fiscal year and a modest improvement in the operating income rate.
“Month-to-date revenue is on track with our expectations,” said EVP and CFO Darren Jackson. But he hinted that holiday sales may not be as strong as prior years.
“Of course, we believe that our highest volumes are still ahead of us, and consumers seem to shop later every year. We expect a comparable-store sales gain of 3 percent to 5 percent for both fiscal December and the fourth quarter,” he said. “Our revenue guidance reflects the calendar shift, including the benefit of two extra shopping days before Christmas; our improved ability to serve customers in our stores; and the continued strength we see in digital televisions, MP3 players, digital cameras, notebooks and appliances, among other areas. We anticipate that our existing customer-centricity stores and the opening of approximately 10 stores in the fourth quarter also will support our top-line growth.”