Consumer electronics and appliance retailer Best Buy Co., Inc. reported net earnings of U.S. $170 million, or $0.51 per diluted share, for the first quarter, which ended on May 28, 2005. First-quarter net earnings increased 85 percent year-over-year as compared to $92 million, or $0.28 per diluted share, had Best Buy expensed stock-based compensation previously. The company's earnings for the first quarter of fiscal 2006 exceeded the mean analysts' estimate of $0.30 per diluted share.
The retailer reported that revenue increased 12 percent to $6.1 billion, driven by the opening of new stores and a comparable store sales gain of 4.4 percent. U.S. Best Buy stores reported revenue of $5.5 billion and a first-quarter comparable store sales gain of 4.5 percent, reflecting a higher average ticket. The company's international stores, which comprise Future Shop and Best Buy stores in Canada, generated revenue of $626 million and a comparable store sales gain of 3.0 percent for the quarter. Magnolia Audio Video stores reported revenue of $30 million, including a comparable store sales gain for the quarter of 1.4 percent.
The company saw the largest increase in customer spending on MP3 players, digital TVs, video games, digital cameras, and notebook computers. The retailer said these categories more than offset the impact of declining product categories, such as desktop computers, analog televisions, and cellular phones.
The consumer electronics product group, which represented 40 percent of revenue for the quarter, posted a high-single-digit comparable store sales gain for the quarter and led the company's results again. Within this group, digital televisions enjoyed strong double-digit comparable store sales growth. Total television comparable store sales grew by the high-single digits as digital television gains were partially offset by declines from analog TVs. MP3 players saw triple-digit gains in comparable store sales and digital imaging posted double-digit growth. The results from these strong growth areas were partially offset by declines in comparable store sales for satellite TV systems and certain audio products.
Appliances represented 6 percent of revenue and reported a comparable store sales gain in the mid-single digits. The growth from the appliances product group was led by mid-single-digit comparable store sales growth in major appliances.
Home office products, representing 34 percent of the quarter's revenue, reported a modest comparable store sale gain for the first quarter. Low-double-digit comparable store sales increases for notebook computers reflected expanded assortments and more effective serpentine displays; these results were partially offset by comparable store sales declines in monitors and desktop computers as well as cellular phones.
For fiscal 2006, Best Buy raised its earnings guidance to a new range of $3.10 to $3.25 per diluted share, up from the prior guidance of $2.95 to $3.10 per diluted share for fiscal 2006. The company reported that it continues to expect revenue for the fiscal year of approximately $30 billion, including a comparable store sales gain of 4 percent to 5 percent.
"Our business outlook for the balance of the fiscal year remains upbeat. This new range is a function of the outstanding results of the first quarter and a reduced effective income tax rate for the fiscal year," said Darren Jackson, executive vice president - finance and chief financial officer. "Additionally, our intent with the new earnings range is to maintain flexibility for potentially larger investments in our transformation, including segmenting more stores, opening more new stores, and enhancing our services business. The revised earnings guidance reflects a certain degree of conservatism, but we are mindful that we have the majority of the year's earnings in front of us."
The company also provided earnings guidance for the fiscal second quarter of $0.51 to $0.56 per diluted share. This range assumed a comparable store sales gain of approximately 4 percent; a modest improvement in the operating income rate compared to last year, driven by a higher gross profit rate, partially offset by higher expenses (associated with the expansion of the services business, the timing of certain expenses and additional segmented stores); and, finally, a lower effective income tax rate
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