Best Buy Q1 profit rises on flat-screen TVs
Gross margins fall on videogame consoles
By Danny King -- Video Business, 6/17/2008
JUNE 17 | Best Buy said today that its fiscal first-quarter revenue rose 13% on higher sales of flat-panel TVs and PCs, but earnings fell 6.8% because of lower margins on videogame consoles.
Net income for the quarter ended May 31 fell to $179 million, or 43¢ a share, from $192 million, or 39¢, a year earlier, as U.S. same-store sales of entertainment software, which includes videogames, increased 8.2%. Flat-screen TV sales also increased as the company boosted financing promotions.
Overall sales were $8.99 billion, up from $7.93 billion a year earlier.
Videogame industry sales in May surged 37% after Take-Two Interactive’s Grand Theft Auto IV set one-day and first-week sales records after its April 29 release, according to NPD Group. Best Buy helped feed such sales with a larger inventory of game consoles, such as the Nintendo Wii, Piper Jaffray analyst Mitchell Kaiser wrote in a note to clients last week.
The company also benefitted from more demand for liquid-crystal display TVs, which drove calendar first-quarter worldwide TV sales up 8% from a year earlier to $24.8 billion, NPD Group unit DisplaySearch said earlier this month.
Best Buy shares fell about 4% this morning after the increase in videogame items caused the company’s gross margin to drop 0.2% from a year earlier to 23.7%.
“Gross margin should remain under pressure as the mix to gaming and PCs continue as well as increasing pressure from discounters,” Pali Capital analyst Stacey Widlitz wrote in a note to clients yesterday, before earnings were released. “We believe the competitive landscape will continue to move in the wrong direction.”
Best Buy reiterated its previous fiscal 2009 revenue forecast of as much as $44 billion on same-store sales growth of as much as 3% on continued increases in home entertainment and videogame demand. Earnings will be as much as $3.40 a share, up from $3.12 a share for fiscal 2008.
“We are very clear on our growth goals—particularly at the store level, where we are getting outstanding traction on locally driven growth ideas,” Best Buy president Brian Dunn said in the statement this morning.
