This summary is based on the first quarter fiscal 2009 earnings call conducted by Best Buy Co. Inc. (BBY) on June 17, 2008.
Management:
Vice Chairman and CEO: Bradbury H Anderson
CEO – Best Buy International: Robert A Willett
SVP and Interim CFO: James L Muehlbauer
President, COO: Brian J Dunn
EVP, Retail Chain Management: Shari L Ballard
SVP, Consumer and Brand Marketing: Barry Judge
EVP, Customer Operating Groups: Mike Vitelli
VP, Investor Relations: Jennifer Driscoll
Investor Relations: Wade Bronson
Manager Store 22, Davenport, Iowa: Chris Geigle
Key Investor Issues:
- The EPS rose from 39 cents in the year ago quarter to 43 cents.
- The Q1 gross profit as percent of revenue was 23.9% versus 23.7% in Q1 of 2008.
- Quarterly operating income eased $11 million to $266 million.
First-Quarter Financial Highlights
The first quarter results showed better than expected revenue growth.
- The 13% increase reflected the net addition of 145 stores in the past 12 months, a comparable store sales gain of 3.7% and the favorable impact of foreign currency fluctuations.
- The comparable store sales gain accelerated in the second half of the quarter and remains solid.
- The comparable store sales gain was driven by an increase in the average selling price.
The company reported solid operating income growth, driven by solid revenue growth through store openings and higher comparable store sales.
- The total online revenue grew 30% for the quarter, as consumers responded to new online features.
- The domestic revenue grew 11% due to the net addition of 106 new stores in the past 12 months as well as a comparable store sales gain of 3.5%.
- The international revenue grew 26% helped by favorable fluctuations in foreign currency rates, the net addition of 39 new stores in the past 12 months and a comparable store sales gain of 4.7%.
The company estimated that its domestic market share increased by about 1.5% compared with the prior year’s period.
- The gains were in key categories such as TVs, computing, video gaming and mobile phones.
- The gain was led by the home office category aided by the expansion of Apple computing products to nearly 500 U.S. Best Buy stores and the addition of Dell computers into the assortment at all U.S. Best Buy stores starting last December, on top of carrying all of the other major brands.
- The company added more than 3 million members to its loyalty program in the U.S. during the first quarter of 2009, finishing Q1 with more than 29 million Reward Zone members.
- The company operated 599 Best Buy Mobile locations within its U.S. Best Buy stores at quarter end.
- On a year-over-year basis, these locations continued to enjoy strong double-digit gains in the number of wireless connections, driving a strong double-digit comparable store sales gain for the wireless category.
Due to the strong results driven by the Best Buy Mobile employees coupled with the expertise of Carphone Warehouse Group PLC, the company has decided to extend its relationship with CPW under the existing agreement to include similar experiences in Canada, China, Mexico and Turkey.
- The international expansion of Best Buy Mobile will be led by Charles Dunstone, the CEO of CPW.
- The company announced its plan to start a new venture in Europe, in a new phase of its relationship with CPW.
- The new venture will mainly consist of CPW’s mobile services and retail distribution services, which include more than 2,400 European stores; as well as CPW’s share of Best Buy Mobile in the U.S. and Geek Squad operations in the U.K. and Spain.
- The company agreed to pay CPW GBP1.1 billion or about $2.1 billion in cash for a 50% stake in the new venture.
- The company expects the transaction to close on June 30, 2008 subject to customary approvals.
The SG&A expense rate increased to 20.6% of revenue for the quarter.
- This is in comparison with 20.5% of revenue for the prior year’ quarter.
- The year-over-year increase was better than expected as solid revenue growth largely offset planned investments for future growth.
- The company invested in IT capabilities through the launch and operation of Best Buy Mobile store-within-a-store locations and international investments.
The company reported investment and other income of $21 million versus $44 million in the same period last year.
- The decrease was due to the impact of lower average cash and investment balances.
- The lower average cash and investment balances were a result of the company’s $3.5 billion of share repurchase in fiscal 2008.
Best Buy’s Domestic Segment
- The segment comprises of US Best Buy, Best Buy Mobile, U.S. Geek Squad, Magnolia Audio Video, Pacific Sales and Speakeasy Operations.
- The Q1 operating income rose by $7 million to $277 million versus the year ago quarter.
- The Q1 revenue totaled $7.5 billion, an increase of 11% from the same period in 2008.
- The revenue increase was helped by the net addition of 106 new stores in the past 12 months and a comparable store sales gain of 3.5%.
- The 30-basis-point dip in operating income rate was due to a 20-basis-point decline in the gross profit rate and a 10-basis-point increase in SG&A rate.
- The reduction in the gross profit rate was due to continued shift in the revenue mix to lower-margin video game hardware and notebook computers, partly offset by improvements due to mobile phones increasing in the revenue mix as well as an improved gross profit rate within the home theater category.
- The rise in SG&A rate was better than expected as solid revenue growth largely offset planned investment spending on the Best Buy Mobile expansion and IT projects designed to enhance the company’s point-of-sale systems and multi-channel capabilities.
