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Sales of flat-panel TVs boost Best Buy’s profit

Best Buy Co. Inc., the nation’s largest consumer electronics retailer, said fourth-quarter profits grew 13 percent as customers spent more on big-ticket items like flat-panel televisions, digital music players and laptop computers.
/ Source: The Associated Press

Robust sales of flat-panel televisions, digital music players and laptop computers propelled Best Buy Co. Inc. to a 13-percent increase in fourth-quarter profits, the nation’s largest consumer electronics retailer said Thursday.

Best Buy said online sales jumped by 50 percent and customers at its stores ran up larger bills, offsetting a slight drop in customer traffic.

Best Buy also announced that it would open its first test store in China by this time next year, marking its first retail foray into a country where it already has three offices for buying goods.

Earnings for the quarter ending Feb. 25 rose to $644 million, or $1.29 per share, from $572 million, or $1.13 per share, the previous year. That matched the consensus of analysts polled by Thomson Financial.

Sales of $10.69 billion were up 16 percent from $9.23 billion a year earlier, topping the consensus of $10.53 billion. Sales at stores open at least 14 months — a key retail barometer — grew 7.3 percent.

For the full year, earnings grew to $1.14 billion, or $2.27 per share, from $984 million, or $1.96 per share, in 2004. Revenue climbed 12 percent to $30.85 billion from $27.4 billion.

The company forecast fiscal 2007 earnings of $2.65 to $2.80 per share — including 3 cents to 5 cents of severance and reorganization costs — with sales growing between 10 percent and 13 percent to a range of $34 billion to $35 billion. Same-store sales are expected to grow 3 percent to 5 percent for the year.

Best Buy plans to stop giving quarterly guidance, although Chief Financial Officer Darren Jackson promised to update the company’s annual guidance if it changes significantly.

Analysts currently predict Best Buy’s 2007 profit at $2.64 per share on $34.23 billion in sales.

The company said that during the coming year it would add 75 to 80 new U.S. stores to its current total of 742, along with about 10 new stores in Canada, where it currently has 118 Future Shop stores and 44 Best Buy stores.

It’s also laying the groundwork for entering China.

“We recognize that China is a dramatic departure from how we do business in North America,” Executive Vice President Robert Willett said on a conference call with analysts. He said Best Buy would open a single lab store to learn how to sell electronics there.

Best Buy has not decided in which city to put the store, Jackson said in an interview.

“I would be concerned if we heard about real aggressive growth goals on China at this point,” said analyst John C. Murphy of William Blair & Co. “They need to just learn about China and get comfortable there before we hear about real aggressive growth.”

Jackson confirmed Best Buy would trim about $300 million a year from its selling, general and administrative expenses, which were almost $6.1 billion for the year. That’s what covers expenses such as advertising, blue shirts for store employees, and headquarters expenses.

The extra spending came as the Richfield-based company remade many of its stores to cater to certain types of customers. For example, it has added personal shoppers at stores aimed at suburban soccer moms, or added high-end home theater sections at stores aimed at affluent professional men.

Best Buy has said it would be hunting cuts, which could include layoffs. Best Buy offered few details about where those cuts would come from, and Jackson said it would be rethinking some of its advertising spending. But the company is happy with its “Reward Zone” program that gives discounts to shoppers depending on how much they spend, he said.

In a research note, Credit Suisse analyst Gary Balter called it a good quarter.

“While expenses look high, much of that reflects the profit-sharing numbers, so should not be a worry. These are solid numbers and should allay concerns that there was a significant slowdown in business in February.”