This summary is based on the third quarter fiscal 2008 earnings call conducted by Best Buy Co., Inc. (BBY: chart) on December 18, 2007.

Management:

President, Chief Operating Officer: Brian J. Dunn
Vice President, Investor Relations: Jennifer Driscoll
Executive Vice President, Retail Channel Management: Shari L. Ballard
Chief Executive Officer Best Buy International: Robert A. Willett
Senior Vice President and Interim Chief Financial Officer: James L. Muehlbauer
Vice Chairman of the Board, Chief Executive Officer: Bradbury H. Anderson
Senior Vice President, Entertainment Group: Julie Owen
Senior Vice President, Computer Merchandising: David Morrish
Senior Vice President, Consumer Electronics: Mike Vitelli
Senior Vice President, Consumer and Brand Marketing: Barry Judge
Senior Director, Investor Relations: Charles Marentette

Key Investors Issues

- EPS were 53 cents a share compared to 31 cents a share last year.
- Profit rose to $228 million from $150 million a year earlier.
- Sales jumped to $9.93 billion from $8.47 billion a year ago.

Third Quarter Highlights

Net earnings were $228 million, or 53 cents per share, for its fiscal third quarter ended on Dec. 1, 2007.

The earnings per share increased 71%, compared with 31 cents per share, or $150 million, for the prior-year third quarter. The better-than-expected EPS growth was driven by 17% revenue growth, which stemmed from new store openings and a 6.7% comparable store sales gain. The comparable store sales gain included the benefit of an additional post-Thanksgiving holiday shopping week. The strong revenue growth, which helped drive selling, general and administrative (SG&A) expense leverage, coupled with a flat gross profit rate, drove a 120-basis-point improvement in the operating income rate for the quarter.

Revenue increased 17% to $9.9 billion, compared with revenue of $8.5 billion for the third quarter of fiscal 2007.

The revenue increase reflected the net addition of 127 new stores in the past 12 months and a comparable store sales gain of 6.7% for the third quarter. The comparable store sales gain was driven by an increase in the average selling price, as the company’s revenue mix continued to reflect a shift toward higher-ticket items, such as video gaming consoles, notebook computers, flat-panel TVs and GPS devices. The calendar shift also added to the comparable store sales gain.

The gross profit rate was 23.5% of revenue, which was unchanged from the prior-year’s period.

Adding to the rate was a more rational year-over-year promotional environment in the U.S., particularly in home theater and computing, plus less costly promotional offers. These gains were offset by the continued increase in the revenue mix of lower-margin products (such as video gaming systems and notebook computers).

Best Buy’s SG&A expense rate improved to 20% of revenue, compared with 21.2% of revenue for the prior year’s period.

The year-over-year improvement in the SG&A expense rate was primarily due to leverage on revenue growth and productivity gains, including store operating model changes in the United States.

The company reported investment and other income of $32 million, compared with $31 million in the prior year’s third quarter.

The change reflected an $8 million gain on the sale of an equity investment, which was partially offset by the impact of lower average cash and investment balances, due to the company’s ongoing, accelerated share repurchase (ASR) program. Additionally, interest expense of $23 million was $16 million higher than in the prior year’s period due to current borrowing related to the ASR program.

The company’s effective income tax rate was 35.6%, versus 31.6% for the prior year’s period.

The increase in the effective income tax rate was due to three factors: the absence of the favorable resolution of certain tax matters that occurred in the prior fiscal year, changes in the global composition of the company’s earnings, and lower tax-exempt interest income.

The company’s merchandise inventory increased 22% year over year.

The increase reflected new store growth, increased availability of products such as video gaming, flat-panel TVs and notebook computers, and the impact of the calendar shift, as the quarter ended one week further into the holiday shopping season.