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Best Buy sees first-quarter profit up 38 percent

Best Buy Co. Inc. said Tuesday its first-quarter profits rose almost 38 percent as customers bought more big-ticket items like flat-panel TVs and cost-cutting measures took effect.
/ Source: The Associated Press

Best Buy Co. Inc., the nation’s largest consumer electronics retailer, said Tuesday that cost-cutting and sales of big-ticket items powered a fiscal first-quarter profit increase of nearly 38 percent.

Its shares jumped more than 4 percent.

Best Buy earned $234 million, or 47 cents per share, in the three months ended May 27, up from $170 million, or 34 cents per share, during the same period last year. Analysts surveyed by Thomson Financial were expecting 36 cents a share.

Revenue jumped almost 14 percent to $6.96 billion from $6.12 billion.

Sales at stores open 14 months — a key retail measure — grew 4.9 percent. Best Buy said the gain was driven by an increase in the average size of each transaction, as customers spent more on flat-panel televisions, music players, and laptop computers. Sales of older televisions, music, desktop computers and printers all declined.

The company also said consumers bought more at its Web site, and online revenue grew more than 30 percent.

The growth came despite economic headwinds such as rising interest rates and gas prices. Retailers have been nervously watching to see whether customers would spend less. Best Buy’s comparable-store sales gain was down from the fourth quarter’s 7.3 percent because of those factors, said Darren Jackson, chief financial officer.

Best Buy was helped by comparable-store sales increases of 22 percent at stand-alone Magnolia high-end home theater stores, and 7 percent at Canadian stores.

After criticism earlier this year for runups in spending on advertising, headquarters and corporate expenses, Best Buy has said it wants to reduce the growth of such spending by $300 million to $350 million over the next two years. It laid off 300 people at its Richfield headquarters in April.

On Tuesday it said it had made a short-term reduction in advertising spending and had reduced spending on travel. And at the suggestion of a group of store managers, it cut the number of assistant managers at most stores from seven to five.

“This quarter suggests that we’re off to a good start,” Jackson said in an interview.

He said he expects advertising to increase again for new products, such as Sony Corp.’s PlayStation 3, planned for November, and the new version of Microsoft Corp.’s Windows operating system, planned for early 2007.

The company reiterated its earnings guidance of $2.65 to $2.80 per share for the full year. Analysts are looking for $2.72 a share for the year.

The positive first-quarter results left some analysts wondering why Best Buy wasn’t raising its guidance for the year.

Analyst James Ragan at Crowel, Weedon said Best Buy took the conservative route by not raising guidance.

“Knowing that the holiday season is still the big quarter, I think it’s prudent to hold the guidance right now,” he said. “They probably believe that things are a little bit better, but it’s a little too early in the year to officially raise the guidance.”

Best Buy said it would increase the number of Magnolia stores from 127 now to 300 stores within Best Buy stores. Some current Magnolia stores are stand-alone locations.

The Magnolia high-end TV stores help bring bigger-spending customers into Best Buy. And Jackson said Magnolia stores consistently improve home theater sales in Best Buys where they open.