Best Buy profit jumps, flat panels strong
Sees margin pressure offset by expense controls
By Angela Moore, MarketWatch
Last Update: 10:33 AM ET Apr 4, 2007
NEW YORK (MarketWatch) -- Best Buy Co. said Wednesday that its fiscal fourth-quarter profit jumped 18.5%, thanks to higher sales of flat-panel television sets, video-gaming hardware and notebook computers.
Results were also helped by a shift in the retail calendar that gave Best Buy an extra week of selling and by new-store openings and acquisitions, the company said.
Sales of flat-panel TVs rose in double digits and home-installation services tripled amid a price war this past holiday season between consumer electronics retailers. Both Best Buy and rival Circuit City Stores Inc. have said price competition during the holidays and the resulting gross-margin pressures took a toll on profits.
Best Buy said on Wednesday it won the tussle with significant market share, particularly in flat-panel TVs.
Investors pushed shares higher by about 1% in early trading to $49.58.
Best Buy expects its gross-margin rate to decrease for the year, reflecting faster growth of thinner-margin merchandise, but said the decline will be offset by tighter expense controls.
Best Buy (BBYBest Buy Co., Inc
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BBY ) said it earned $763 million, or $1.55 a share, compared with $644 million, or $1.29, in the year-earlier period.
Sales rose 21% to about $12.9 billion as same-store sales, the industry's benchmark of growth measured by receipts tallied at stores open at least 14 months, climbed 5.9%.
The results outpaced Wall Street's expectations. Analysts polled by Thomson Financial, on average, expected the company to earn $1.52 a share on revenue of $12.67 billion, on average.
"We plan to continue to invest in acquisitions and capabilities that will help us serve customers better and boost results from our current business model as we continue to generate new growth opportunities," Chief Executive Officer Darren Jackson said in a statement.
Best Buy said its consumer-electronics segment represented 46% of its fourth-quarter revenue, and posted an 8.5% same-store-sales gain.
Within consumer electronics, flat-panel TVs experienced a double-digit same-store-sales gain as declining prices led to higher volumes and increased screen sizes.
Total television same-store sales grew by double digits as flat-panel-TV growth was partly offset by declines from tube and projection TVs.
Home-theater-installation services grew by triple digits, accompanying the high demand for flat-panel TVs. The company said it gained significant market share in electronics, particularly flat-panel TVs, due to successful promotional strategies and its focus on providing solutions for customers. A low-double-digit same-store sales gain in MP3 players also added to the product group's growth.
In its earnings statement, Best Buy stressed its service and an understanding of its customers' "unique needs."
The focus on customer service comes as Circuit City (CCCircuit City Stores, Inc.- Circuit City Group
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CC ) recently unveiled a restructuring plan, which includes slashing thousands of store-associate jobs and filling them with lower-paid replacements. See full story.
Best Buy has stepped up its service in recent years and has been trying to make its stores more inviting to female shoppers. It has built out a successful side business called Geek Squad, to help people with their service needs.
"Customer centricity is our core strategy, and we're realizing that it requires us to think about ourselves in new ways as we differentiate more from the competition," Chief Executive Brad Anderson said in a statement. "In the coming year, you should expect our approach to be broader and deeper as we continue to pursue growth."
'Optimism' for 2008
For the current year, Best Buy expects to earn $3.10 to $3.25 a share on revenue of about $39 billion. It anticipates opening about 130 new stores -- 95 domestic and 35 international -- and sees a same-store sales gain of 3% to 5%.
Best Buy expects its gross-profit rate will decrease by a 0.3 to 0.4 percentage point, reflecting faster growth of thinner-margin products in its revenue mix in a more stable promotional environment. The company expects to "more than offset" the gross-profit rate decline by reducing its rate of selling, general and administrative expense by 0.6 to 0.7 percentage point.
The company also intends to invest $800 million to $850 million in capital in fiscal 2008 to build new stores and improve customer service, among other initiatives. This capital-expenditure estimate excludes the pending Speakeasy acquisition and any other potential acquisitions.
"The relationships we are building with customers, coupled with the continued strong consumer interest in our products and services, give us continued optimism as we begin the year," Jackson said. "We expect fiscal 2008 to be another year of strong revenue and earnings growth."
Angela Moore is MarketWatch's consumer editor based in New York. |
