Best Buy Reports December Revenue of $7.5 Billion, Continues Market Share Gains
Company Updates Fiscal 2009 Annual EPS Guidance Range.
LAS VEGAS. – Best Buy Co., Inc. (NYSE: BBY), from the Consumer Electronics Show, today reported that revenue for the fiscal month ended Jan. 3, 2009, rose 4 percent to $7.5 billion, which was in line with company expectations. The revenue for the five-week period compared with $7.3 billion in revenue for the five-week period ended Jan. 5, 2008. Gains from the inclusion of Best Buy Europe’s revenue and the net addition of 194 new stores in the past 12 months were largely offset by a 6.5-percent decline in comparable store sales and the unfavorable impact of fluctuations in foreign currency exchange rates.
In commenting on fiscal December’s revenue results, Brad Anderson, vice chairman and chief executive officer, stated, “While the environment continues to be as challenging as we expected, consumers are being drawn to brands that they trust, and they are responding to our customer-centric model. In this light, we believe the market share gains we’ve been making will be sustained.”
The company’s domestic segment generated $5.9 billion in revenue for fiscal December, which was nearly unchanged compared with last year’s period. The domestic revenue performance included gains from the net addition of 138 new stores in the past 12 months, offset by a comparable store sales decline of 6.8 percent. The comparable store sales decline reflected a decrease in traffic, which was partially offset by an increase in average ticket. The company stated that this year’s December calendar shift did not have a significant impact on domestic comparable store sales.
Brian Dunn, president and chief operating officer of Best Buy, said, “I would like to thank our employees for once again rising to the challenge and delivering extraordinary service. They helped our customers make the most of their entertainment and technology purchases during the busy holiday shopping season.”
The company’s international segment increased its fiscal December revenue by 29 percent to $1.6 billion. International revenue, except for the company’s Canadian operations, is reported on a two-month lag and therefore reflects fiscal October results. The increase was driven primarily by the inclusion of Best Buy Europe’s revenue and the net addition of 56 new stores over the past 12 months (including 25 new store openings in Europe). These gains were partially offset by the impact of unfavorable foreign-currency exchange rates and a comparable stores sales decline of 4.2 percent, with the latter being driven by general weakness in the global economy.
Bob Willett, CEO of International, said, “Despite the uncertain economy, Canada stores and Web sites modestly exceeded our revenue expectations. Our teams delivered superior execution during the important Boxing Week shopping period. The majority of stores had revenue on Boxing Day in excess of $1 million, with many stores significantly surpassing that figure. Revenue in China was modestly below plan, as we saw in the United States during calendar October as well. In Europe, we were satisfied with results, including steady top-line growth. We believe we made further strides in market share in Europe, particularly with prepaid mobile phones.”
· The company believes it continued to gain market share during the holiday shopping season, particularly in mobile phones, computing, home theater and music, due to new store openings and its customer centricity strategy.
· The domestic segment’s comparable store sales were strongest in categories where the company has recently enhanced its customer experience, including flat-panel TVs, notebook computers, and mobile phones and accessories.
· The company’s revenue from its Web sites grew approximately 34 percent for the fiscal month, as more consumers migrated to this purchasing channel.
· The company continued to manage its inventory levels aggressively and believes it is on track to finish the fiscal year with domestic inventory levels (in dollars) flat with the prior year-end levels.
The home office revenue category, which accounted for 24 percent of fiscal December domestic revenue, posted a comparable store sales gain of 6.5 percent. This growth was driven primarily by very strong double-digit comparable store sales growth in mobile phones and accessories. Total connections increased by the solid double digits. In the prior year’s period, only 181 U.S. Best Buy stores offered the Best Buy Mobile experience, which is now available at all U.S. Best Buy stores. Notebook computers experienced low double-digit comparable store sales growth due to the company’s broad assortments and the availability of services.
The services revenue category, which comprised 4 percent of fiscal December domestic revenue, posted a 0.5-percent comparable store sales decrease for the month.
Consumer electronics, which represented 44 percent of fiscal December domestic revenue, posted an 8.7-percent comparable store sales decline. The total television category posted a high single-digit comparable store sales gain, while flat-panel TVs showed low double-digit comparable store sale increases on even stronger unit growth. The strength in televisions was more than offset by comparable store sales declines in digital cameras and MP3 players, which experienced a reduction in consumer demand during the month. In addition, GPS products had significant declines in average selling prices, which more than offset strong double-digit unit increases.
The entertainment software revenue category, which comprised 25 percent of fiscal December domestic revenue, experienced a comparable store sales decline of 12.2 percent. Music and movies experienced double-digit comparable store sales declines. Video gaming comparable store sales declined by the mid single digits, primarily due to a shift toward software and reduced sales of large-ticket consoles, as well as comparisons with strong results in the prior year’s period.
The appliances revenue category, which accounted for 3 percent of fiscal December domestic revenue, declined by 24.5 percent on a comparable store sales basis. The decline was driven primarily by continued weakness in purchases of major appliances.
Year-to-Date Revenue Rises 12 Percent
For the first 10 months of fiscal 2009, Best Buy reported revenue of $37.8 billion, an increase of 12 percent compared with the same period last year. The revenue growth reflected the acquisition of Best Buy Europe and gains from new store openings since the prior year period, which was partially offset by a 0.9 percent comparable store sales decline. The comparable store sales decline for the 10-month period included a 1.1-percent decline for the company’s domestic segment and a 0.2-percent gain for the company’s international segment.
Company Updates Fiscal 2009 Annual EPS Guidance Range
Best Buy updated its guidance for fiscal 2009 annual earnings per diluted share to a range of $2.50 to $2.70, which excludes the $111 million investment impairment charge taken during the fiscal third quarter, expenses related to its voluntary separation program and any other restructuring charges to streamline operations in preparation for a challenging fiscal 2010 environment. This new earnings guidance represents a narrowing of the prior range of $2.30 to $2.90 per diluted share. The guidance assumes a comparable store sales decline of 2 percent to 3 percent for fiscal 2009.
In mid-December, the company announced a voluntary separation package available to nearly all corporate employees in order to reduce future non-customer facing expenses. Based on the number of employees who accepted the offer, the company expects to recognize in its fiscal fourth quarter a charge of approximately $60 million for this voluntary program, as reported on Jan. 8 in an SEC filing. This estimate was limited to the cost of the voluntary separation package and excludes other restructuring activities, such as the cost of future involuntary workforce reductions, if any.
Commenting on the updated earnings range, Jim Muehlbauer, executive vice president and chief financial officer, said, “Given the expected volatility in consumer spending over the holiday shopping season, we prepared plans that reflected a wide range of potential outcomes. Our employees did an outstanding job of execution and truly focused on solving customers’ problems. They delivered revenue results for December that both were in line with our expected range, and reflected strong market share gains. December revenue trends improved as the month progressed, and we were pleased with the effectiveness with which we managed our promotions. While we have limited visibility to consumer spending patterns in the post-holiday period, we feel confident in narrowing the range of our annual EPS guidance, given the proportion of the year that is behind us.”
On March 26, 2009, the company expects to report fiscal fourth-quarter earnings and to provide its initial earnings guidance for fiscal 2010.
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