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Revenge of the Geeks

16 Jun, 2005 By: Holly J. Wagner

It's the Geek Squad to the rescue.

Best Buy's cadre of mobile technical assistants and a focus on customer service paid off in the bottom line.

The company's shares shot up 15 percent, or $8.87, to a record high of $67.99 on June 14 on news that the profit margin increased in the fiscal first quarter ended May 28.

It was the service sector that drove profit increases, executives said. During the quarter, Best Buy hired 1,500 Geek Squad “agents” and staffed up to 650 home theater installers, bringing that business in house. Previously, customers had to turn to third-party installers. As home entertainment platforms multiply and connect with each other, consumers are looking for help to make it all work in homes. Best Buy's Geek Squad is a built-in service component to its customer-centric retail approach.

“Consumers are responding well to the change in how our employees engage with them and suggest solutions that fit their individual lifestyle,” CEO Brad Anderson said. “Moreover, we continue to improve in our execution of the new business model. This work is driving changes in everything from our supply chain to our service offerings to our marketing programs. While making such sweeping changes is difficult, we believe it helps differentiate Best Buy in the marketplace.”

Entertainment software, as a percentage of revenue, held steady at 20 percent for the first quarter compared to the comparable quarter last year chainwide, but rose slightly on a comp-store sales basis. The PlayStation Portable launch drove double-digit growth in video gaming products, offset by comp-store sales declines in revenue from DVDs and CDs.

In keeping with the chain's new approach to customer segments, it began offering tailored market assortments in entertainment software and some other product categories during the quarter.

The gross profit rate for the first quarter was 25.5 percent of revenue, up from a gross profit rate of 23.9 percent of revenue for the first quarter of last year. Revenue increased 12 percent to $6.1 billion, driven by the opening of new stores and a comparable-store sales gain of 4.4 percent. U.S. Best Buy stores reported $5.5 billion in revenue in the fiscal first quarter and a comparable-store sales gain of 4.5 percent, reflecting a higher average ticket price.

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