Best Buy 1st Qtr 2008 Earnings

Best Buy First-Quarter Diluted EPS Rises 10 Percent to $0.43
Company Reports 3.7% Comparable Store Sales Gain
Best Buy is trading lower based on good news?, go figure. BBY is at $43.46 off 5.58%. This could be a great buying opportunity. (Tim)

First-Quarter Highlights
Total quarterly revenue increased 13 percent to $9.0 billion, driven by new store openings, a comparable store sales gain of 3.7 percent and foreign currency exchange fluctuations. Total online revenue grew 30 percent for the quarter as consumers responded to new online features, such as improved navigation and the addition of customer reviews and ratings.
Domestic revenue grew 11 percent, reflecting the net addition of 106 new stores in the past 12 months as well as a comparable store sales gain of 3.5 percent. International revenue grew 26 percent, aided by favorable fluctuations in foreign currency exchange rates, the net addition of 39 new stores in the past 12 months and a comparable store sales gain of 4.7 percent.
The company estimated that its domestic market share increased by approximately 1.5 percentage points compared with the prior year's period, with the gains showing up 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 United States during the first quarter of fiscal 2009, finishing the first quarter with more than 29 million Reward Zone members.

First Quarter Results Show Better-Than-Expected Revenue Growth
For the fiscal 2008 first quarter, Best Buy's revenue increased 13 percent to $9.0 billion, compared with revenue of $7.9 billion for the first quarter of fiscal 2008. The revenue increase reflected the net addition of 145 new stores in the past 12 months, a comparable store sales gain of 3.7 percent and the favorable impact of foreign currency fluctuations. The comparable store sales gain accelerated in the second half of the quarter and remains solid thus far in early fiscal June. The comparable store sales gain for the quarter 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 flat-panel TVs, video gaming consoles, notebook computers and GPS devices.
The gross profit rate for the fiscal first quarter was 23.7 percent of revenue, which declined 20 basis points from the prior-year's fiscal first-quarter rate, due to the mix of the revenue growth. Stronger-than-anticipated revenue from lower-margin items such as notebook computers and video game consoles contributed to the decline. Partially offsetting these decreases was the positive impact of increased sales in mobile phones as well as a year-over-year improvement in promotional effectiveness--particularly in televisions, inclusive of taking into account the increased use of financing offers as a customer value proposition.
Best Buy's SG&A expense rate increased to 20.6 percent of revenue for the fiscal first quarter, compared with 20.5 percent of revenue for the prior year's fiscal first quarter. The year-over-year increase was better than expected as solid revenue growth largely offset planned investments for future growth. As expected, the company invested in its IT capabilities, the launch and operation of Best Buy Mobile store-within-a-store locations and international investments, such as IT infrastructure, customer research capabilities and start-up costs associated with launching and preparing to launch new stores in China, Mexico and Turkey.
The company reported investment and other income of $21 million, compared with $44 million in the prior year's fiscal first quarter. The reduction in investment and other income reflected the impact of lower average cash and investment balances due to the company's $3.5 billion of share repurchases in fiscal 2008.
"We are incredibly encouraged by our employees' continued energy and appetite for growth around the globe," said Brian Dunn, president and chief operating officer of Best Buy. "We are very clear on our growth goals--particularly at the store level, where we are getting outstanding traction on locally driven growth ideas. We have an amazing opportunity to pair the power of our scale with our local insights which are closest to the customer--and we see many indicators that our growth propositions are working."
Company Reiterates Annual EPS of $3.25 to $3.40 for Fiscal 2009, Excluding New Venture
Jim Muehlbauer, Best Buy's executive vice president of finance and CFO, said, "We are off to a solid start and remain on track to deliver $3.25 to $3.40 of diluted EPS for the year. The ability of our employees to deliver strong top-line and positive operating income results in a challenging environment reflects their focus on the customer and underscores our belief in their ability to grow the company."
The company continues to expect $43 billion to $44 billion in revenue for the fiscal year, assuming a comparable store sales gain for the year of 1 percent to 3 percent. Also, as previously reported, Best Buy does not plan to repurchase any of its shares in fiscal 2009.
Best Buy's current earnings guidance excludes the impact of its new venture with CPW, which remains subject to customary approvals. The company currently anticipates closing the transaction by June 30, 2008. The company also currently expects to report the results of the new venture on a two-month lag, similar to the reporting lag in China. As a result of the company's current decision to report the operating performance of the new venture on a two-month lag (whereas the financing costs related to the transaction will commence on the transaction closing date), the company now expects the CPW transaction's net accretion to be modestly below the previously announced range of $0.05 to $0.07 per diluted share for fiscal 2009.