Best Buy Reports Steady Business

Announces modest 4Q, annual results as it tries to sell Musicland, waits for war to end
Posted April 4, 2003

Best Buy Co. Inc. (Eden Prairie, Minn.) has announced a modest 1.2 percent gain in same-store sales for its fourth quarter 2002, ending March 1, 2003.

For the year, same-store sales were up 2.4 percent. The company's Musicland division, which Best Buy is seeking to sell, suffered a 13 percent drop in same-store sales in the fourth quarter, as its total revenues fell by 15 percent.

"The fourth quarter was difficult for many retailers, including Best Buy," said ceo Brad Anderson. "Yet I am pleased that while we saw a competitive environment that was much more vigorous than in the prior year, we navigated it successfully to gain market share without sacrificing profitability. We also increased income from continuing operations at a 13 percent rate compared with fiscal 2002 on an as-adjusted basis."

Revenue for the fourth quarter, excluding revenue from discontinued operations, increased 11 percent, reflecting the addition of 67 U.S. Best Buy stores in the past year (which brought the total to 548 stores) and six new Magnolia Hi-Fi stores, as well as the opening of eight Best Buy Canada stores and nine Future Shop stores.

The retailer attributed its same-store sales increases for the full year to gains in sales of digital TVs, digital cameras, DVD movies and video gaming, which offset declining sales of desktop computers, prerecorded music and appliances. It said robust growth in the revenue from Internet sites also contributed to the increase.

However, executive vp and cfo Darren Jackson said he expects the first quarter of 2003 to be "challenging, given the trends we are seeing in the business. In light of the outbreak of war, related geopolitical uneasiness and very weak consumer confidence (factors that are impacting sales in both domestic and international markets), it is difficult to forecast first-quarter earnings from continuing operations with confidence. This difficulty is compounded by the fact that revenue in the first quarter is seasonally lower, and therefore our results are more sensitive to changes in comparable store sales.

"Because of the 'CNN effect,' where people stay at home watching television instead of shopping," Jackson continued, "our same-store sales in March have declined approximately 3 percent. I believe our expectations of an increase of earnings from continuing operations of approximately 15 percent in fiscal 2004 can be achieved, assuming the war comes to a swift conclusion and consumer confidence reverses its downward trend."