Best Buy's earnings drop sharply
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(AP) - Best Buy Co., the nation's largest consumer electronics retailer, on Tuesday said first-quarter earnings fell 18 percent, hurt by weak profits in China and increased sales of lower-margin products such as notebook computers.
Profit for the quarter ended June 2 dropped to $192 million, or 39 cents per share, from $234 million, or 47 cents per share, in the same period a year ago.
Revenue rose 14 percent to $7.93 billion, from $6.96 billion last year. The revenue increase included the addition of 230 new stores, including 131 through acquisitions.
Analysts polled by Thomson Financial expected a profit of 49 cents on revenue of $7.85 billion.
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Same-store sales, or sales in stores open at least 14 months, grew 3 percent during the quarter.
Same-store sales is considered a key gauge of retail industry performance because it measures growth from established stores rather than growth from newly opened ones.
Chief Executive Officer Brad Anderson told analysts during a conference call that the company achieved its strategic goals in the first quarter, if not its financial ones.
He said during the first quarter the company gain market share, posted strong international sales and outperformed other electronics retailers.
"We're never satisfied with missing earnings," Anderson said. "However, we know it does not reflect the core health of our business, the strength of our strategy, or our ability to execute through our people or our optimism about the future"
Consumers buying higher-priced items helped to drive revenue growth in the quarter.
The company's overall gross profits were hurt in the quarter by the inclusion of Best Buy's China business, which was acquired last June and has significantly lower gross profit rates than the company's domestic operations.
Further, the company saw increased sales of lower-margin items such as notebook computers and gaming hardware.
Also Tuesday, Best Buy cut its fiscal 2008 profit outlook to $2.95 to $3.15 per share, saying that continued sales of lower-margin categories may weigh on results. Analysts polled by Thomson Financial had forecast a 2008 profit of $3.15 per share.
"We continue to believe that our earnings growth for the year will come in the back half of the year," Chief Financial Officer Darren Jackson told analysts. "The first half will be tougher based on the industry trends and our first quarter results."
Best Buy shares fell $2.24, or 4.7 percent, to $45.77 in early morning trading Tuesday.
Best Buy sells consumer electronics and related products through about 1,200 retail stores throughout the United States and Canada and owns stores in China.
(Copyright 2007 by The Associated Press. All Rights Reserved.)
