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Video Game Surge Can't Stop Best Buy Profit Slide

17 Jun, 2008 By: Erik Gruenwedel

Despite an 8.2% rise in same-store sales of entertainment software — driven by video games and hardware — Best Buy Co. Inc. reported first quarter (ended May 31) net income of $179 million, down nearly 7% from $192 million during same period last year.

The entertainment category, which included DVD and music CDs, produced the second strongest same-store sales gain in the quarter after the home office category, and marked a strong turnaround from a 0.8% decline last year.

Best Buy is expanding test stores in Canada for the trading, buying and selling of used video games. The No. 1 consumer electronics chain hopes to emulate successful programs established by retailers Gamestop and Gamestore.

“It's a phenomenal way of getting to a younger consumer, 12-to-14 years, who are really the drivers of this,” said Robert Willett, CEO of Best Buy International, in a call with investors.

Sales of flat-panel HDTVs, mobile phones and GPS devices continued to prosper due to availability of new models and pricing incentives. Free-falling sales of projection and tube TVs resulted in the consumer electronics category posting a 0.6% same-store sales decline.

Company executives said Best Buy June 30 would close its previously reported $2 billion investment for 50% stake in CarPhone Warehouse, which distributes and sell mobile services in more than 2,400 stores.

Best Buy continued its U.S. rollout of a proprietary mobile phone service, which CEO Brian Dunn hailed for its 50% same-store sales increase across an initial product placement in 599 select stores.

“The strong double-digit comp at the converted stores was four times that of the unconverted, or as I guess I should call them, the soon-to-be-converted stores,” Dunn said.

Same-store sales (open at least 14 months) in the United States increased 3.5% from 1.7% last year, as revenue topped $7.4 billion compared to $6.7 billion last year. When factoring in foreign sales, including Canada, revenue topped $8.9 billion, compared to more than $7.9 billion last year.

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