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Home Theater Fuels Strong Best Buy Q2

13 Sep, 2006 By: Erik Gruenwedel

Installation of home theater systems and sales of flat-panel high-definition televisions helped Best Buy post second-quarter (ended Aug. 26) profit of $230 million, up 27% compared to $188 million during the same period last year.

Revenue for the Minneapolis-based retailer was $7.6 billion, compared to $6.7 billion last year.

Best Buy announced it would open 142 new in-store Magnolia Home Theatre locations, as its Geek Squad in-home service and Pacific Sales division contributed to the company's focus on HDTV and home theater.

Best Buy CEO Brad Anderson, in an analyst call, said the company's $400 discount on purchases of HDTVs larger than 37 inches and comparable 25% drop in unit prices helped spur revenue.

“Home theatre is the new hearth of the North American home,” said Anderson. “Customers want flat-panel TVs because the picture quality is so much better and because they look so good in the home.”

Entertainment software (movies and music) sales fell to 15% of revenue compared to 16% last year as Best Buy reported a 0.5% decline in gross profit due to increased promotions for DVD movies and notebook computers.

Comparable store sales of DVDs increased by “the low single digits,” said Anderson.

When asked what effect burgeoning digital distribution of entertainment might have at retail, Anderson said the impact would be minimal in the near term while at the same underscoring Best Buy's focus on home theatre systems and service.

“There are more places for consumers to consume content than ever before,” Anderson said. “In the short term it won't have a major impact [at retail] but to get them excited about the category.”

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