This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Best Buy Co. Inc. (BBY: chart) on April 4, 2007.

Key Investors Issues

- Earnings per share were $1.55 compared to $1.29 in the prior year quarter.
- The quarterly revenue grew to $12.9 billion versus $10.7 billion in last year.
- Best Buy expects revenue of $39 billion in fiscal 2008, up 9% over fiscal 2007.
- Best Buy repurchased about 2.3 million shares of its common stock at an average price of $49.36 per share.

Fourth Quarter Fiscal 2007 Financial Highlights

Best Buy reported net earnings of $763 million or $1.55 per share for the fourth quarter.

Earnings per diluted share increased 20% compared with $1.29 per diluted share or $644 million for the prior year’s fourth quarter.

For the quarter, the revenue grew 21% to $12.9 billion compared with revenue of $10.7 billion in the prior year.

The revenue increase was driven by a comparable store sales gain of 5.9%, the inclusion of an extra week of business and the net addition of 231 new stores (including 145 acquired stores) in the past 12 months. The comparable store sales gain, which was stronger than expected, was driven by an increase in the average ticket.

Best Buy’s domestic segment reported fourth-quarter revenue of $11.1 billion, an increase of 18%.

The revenue gain was supported by the opening of 94 new stores (including 14 acquired stores) in the past 12 months, an extra week of revenue and a comparable store sales gain of 4.8%. The domestic segment’s revenue was bolstered by growth in online revenue of more than 40%.

Best Buy’s international segment generated fourth-quarter revenue of $1.8 billion.

The 43% jump in revenue, compared with the prior year’s period, was driven by the acquisition of Five Star, a comparable store sales increase of 14% in Canada, an extra week of revenue and new store openings.

During the quarter, Best Buy’s comparable store sales gain was driven by higher revenue from flat-panel televisions, video gaming hardware and notebook computers.

These gains more than offset comparable store sales declines in tube and projection TVs, printers, CDs and desktop computing. Best Buy’s revenue mix for the fiscal 2007 fourth quarter reflected continued growth in the consumer electronics product group.

Consumer electronics, which represented 46% of fourth-quarter revenue, posted an 8.5% comparable store sales gain. Within consumer electronics, flat-panel TVs experienced a strong double-digit comparable store sales gain as declining prices led to higher volumes and increased screen sizes. A low-double-digit comparable store sales gain in MP3 players also added to the product group’s growth.

The entertainment software product group, which comprised 21% of fourth-quarter revenue, increased 9.2% on a comparable store sales basis. The gain was driven by a strong-double-digit gain in comparable store sales of gaming hardware and double-digit gains in video gaming software and peripherals. As expected, these gains were partially offset by declines in CDs and DVDs.

Home office products, which accounted for 27% of fiscal 2007 fourth-quarter revenue, were steady with a comparable store sales increase of 0.2%. Contributing to the results was the launch of Microsoft’s Vista operating system, which accompanied double-digit comparable store sales increases for notebook computers and computer services. The gains from notebook computers and computer services were nearly offset by declines in comparable store sales of printers and desktop computers. The company believes it gained market share in notebook and desktop computers due to consumer preference for its in-store experience, broad selection and knowledgeable employees.

Comparable store sales for appliances, which were 6% of fiscal 2007 fourth-quarter revenue, increased 0.5%. Amid a challenging housing market, this product group showed a modest gain from major appliances, partially offset by softness in small appliances.

The gross profit rate for the fourth quarter was 24.1% of revenue, down from a gross profit rate of 25% percent of revenue for the prior-year fourth quarter.

The gross profit rate included a 15-basis-point benefit ($23 million for periods prior to the fiscal fourth quarter) due to gift card breakage (gift cards sold but not expected to be redeemed). This breakage was recorded as a result of determining the company’s legal obligation to remit the value of unredeemed gift cards to certain states not reflected in the initial fiscal 2006 breakage recognition. Excluding the breakage, the gross profit rate declined by 105 basis points, compared to the prior year’s fourth quarter. This decrease was primarily driven by an increase of video gaming hardware in the revenue mix and growth in the online channel, both of which carry lower margins. The gross profit rate also reflected a slightly more promotional environment in this year’s fourth quarter, particularly in home theater and, to a lesser extent, music and movies. These results additionally include the impact of the Five Star business (which carries a lower gross profit rate), acquired in June 2006.