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Best Buy Q1 Profit Declines

14 Jun, 2011 By: Erik Gruenwedel

HDTV sales continue to disappoint as chain looks to shrink retail footprint

Best Buy Co. June 14 reported first-quarter (ended May 28) net income of $136 million, down 12% from income of $155 million during the previous-year period.

The Minneapolis-based consumer electronics retailer cited ongoing softness in television sales (high single-digit percent same-store decline), digital imaging and physical media, including movies and music, as contributing factors in the income decline.

Notable exception included a promotion involving a free smartphone with the purchase of Lady Gaga's latest CD, which Best Buy CEO Brian Dunn touted a huge success in the challenged home entertainment market.

"The real story here is the value of our cross-category promotions that drived incremental revenue and traffic," Dunn said in a call with analysts.

Best Buy, which has been aggressively marketing its CinemaNow movie downloading service (and Napster music) via displays in its physical media, didn’t disclose digital media revenue.

Declines in HDTV sales indicate ongoing challenges with convincing consumers to adopt 3DTV and connected televisions — both considered the future of home entertainment.

Income drivers in the quarter included mobile phones (Best Buy Mobile), mobile computing (such as tablets), eReaders, appliances and services, including the Geek Squad.

Dunn said Best Buy was working with landlords of select stores regarding downsizing retail footprints as much as 10% by bringing in third-party retail brands. The CEO was upbeat on standalone Best Buy Mobile stores, which also sell tablet computers and take in used video games in exchange for store credit.

"Twenty-five percent of shoppers in our Mobile stores are first-time Best Buy customers, and these locations also have a higher proportion of female shoppers to our big box stores," Dunn said.

Best Buy opened 20 Mobile stores in the quarter, bringing the install base to 200 locations. It has expanded space in another 600 Best Buy stores for Mobile locations.

Best Buy also had success with its used video game trade-in program that gives customers gift cards good anywhere in the store. Dunn said trade-ins doubled, with 50% of the gift cards used outside the gaming department.



About the Author: Erik Gruenwedel

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