Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Here’s the entire text of the Q&A from Best Buy’s (ticker: BBY) fiscal Q3 2006 conference call. The prepared remarks are here.

We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.

Questions and Answers

Operator

Thank you.

Jennifer Driscoll, Vice President of Investor Relations

First question, please.

Operator

Operator Instructions Our first question is coming from Alan Rifkin with Lehman Brothers.

A - Jennifer Driscoll

Good morning, Alan.

Q - Alan Rifkin

Good morning. How are you?

A - Jennifer Driscoll

Good.

Q - Alan Rifkin

Brad, you mentioned that with the centricity stores you're not seeing the returns that you expected.

A - Brad Anderson

Yes.

Q - Alan Rifkin

If you take this statement together with the 5.4 comp, which I think represents the smallest delta between the centricity stores and your corporate average, I was wondering if you can maybe provide a little bit more color as to where the expectations are really falling short. Are you seeing additional expenses on the centricity side, or do you think that it's just taking a little bit longer for some of these stores to mature.

A - Brad Anderson

Well, thank you. Actually, the older stores, as I believe Darren mentioned in his presentation, are continuing to perform best, and so what we knew as we accelerated our growth through, and decided to do more centricity stores that we were taking the risk that we really had less ability to influence those stores as we opened them, and there was a greater risk that it would take a longer time for those stores to ramp, or we may find that we made mistakes in terms of what we were ramping with because the speed with which we were doing it. I think what we've seen in this last quarter is evidence that all of those risks have had some impact. So we saw a lower rate of gain than we had seen with earlier stores. As we mentioned, both the new stores we opened, and we opened 118 new centricity stores in that mix, we've got the same team that was rolling out a smaller number of stores is charged with a much larger number of stores this year, and we are not seeing the same rate of gain we got from those first stores. Now, part of the thing with those first stores is it took even those stores awhile to get to the level they got to by last spring. We started seeing the very good results. We've got to be very careful as we look, we honestly face what we're seeing which is we were hoping for better results than we've got currently. As well as, so that would argue to pull back on expense structure, and be cautious about any further stores that you open. So we're doing some of that, but also we've got to be care that we look at the information and give the stores an adequate amount of time to adjust since we had less energy that we could apply to each store that we transformed than we did a year ago when we only did 70 stores.

Q - Alan Rifkin

One more question, if I may. A couple of times in the call it was mentioned that the quarter got off to a slow start. Yet in mid-September, you issued guidance for 3 to 5. I would have to believe, having knowing that at that pint in time the quarter was off to a slow start, given the fact that sales did rebound towards the end of the quarter, were you actually expecting a greater rebound?

A - Brad Anderson

No, we actually saw the weakest month of the quarter was October. So we actually, and November started relatively weakly, which when we looked at the, Darren, actually, if you wanted to comment, when we looked at the--.

A - Darren Jackson

Alan, I think the word, you're right, we used the word both slow start but we also used the word choppy. Honestly, when we reflect back, one of the things we didn't want have in the forecast was the depth and how our senior management team would have to put energy into managing the hurricane outcomes in the quarter. And so what you saw, I think is a reflection of how consumer sentiment was dropping, gas prices, and then when that stuff started to stabilize, and quite frankly, as we focused getting into the end of the quarter and into, as we've talked before, November is a generally disproportionate amount of our results in the quarter, our focus turned to November, and quite frankly November was very good. That's why we had confidence to issue the results that we did, because quite frankly it was still early and a disproportionate amount of the results do come in the November time frame.

Q - Alan Rifkin

Thank you. Thank you, Darren, thank you, Brad.

A - Brad Anderson

Thanks, Allen.

A - Jennifer Driscoll

Next question, please.

Operator

Our next question is coming from Mark Rowen with Prudential.

Q - Mark Rowen

Thanks. Couple of questions. If I could follow up on the customer centricity stores, first of all, how many stores were actually in the comp space that were opened a quarter that were segmented stores?

A - Brad Anderson

Mark, I'm sorry, how many, ask me that question again.

Q - Mark Rowen

You said the only ones were in the comp base, it wasn't all of the centricity stores, just the ones that were open a full quarter, so I just wanted to know how many were actually--?

A - Brian Dunn

For in the comp base.

Q - Mark Rowen

Yes.

A - Brian Dunn

We opened 67 stores in October of last year. So in terms of if your question is--

A - Brad Anderson

But you'd also have--.

A - Brian Dunn

It's going to be roughly, it's like 225, Mark.

Q - Mark Rowen

225?

A - Brian Dunn

Yes.

Q - Mark Rowen

So my question, Brad, is that given the fact that the comps gap narrowed pretty considerably--.

A - Brad Anderson

Yes.

Q - Mark Rowen

And you've acknowledged that this is a big HR challenge to roll this out across a whole chain, is this just execution? Did you have problems getting the people in the newer stores to understand what the program's about and up to speed on that, or is it just that as you roll it out to more stores and you have less management to oversee it and people to sort of watch it and make sure it works right, that it just becomes harder to do and it's kind of natural that the comps is going to narrow pretty considerably?

A - Brad Anderson

Well, I think, first of all, for the first 67 stores this would be their second year of comping on top of the, with a centricity initiative. So it's the second year into the centricity initiative. Secondarily, I think, and to some extent we don't completely know the answer to that question, because with as many stores as new into centricity as we've got and the older stores doing better, we're not, there's a whole series of things that potentially it could be. It could be any one of the things you're talking about. It's probably, as we get more time, and as we make further refinements with what we're doing with centricity, I think we'll get a better picture. John, you might want to comment on that.

A - John Walden

Sure. Yes, as Brad had mentioned before, 118 out of our roughly 250, 260 stores just were segmented in this past quarter and represented, so part of them, at the very end of the second quarter, so third quarter is their first quarter, some of them just in November. So we're looking at some very early results. But as Brad pointed out, we just didn't see the speed with which we generally saw high revenue comps. And so what that does, particularly with the higher fixed cost labor model, it puts your SG&A out of whack. So there's a number of things we have to look at. Why didn't the sales ramp quicker? Could we have pulled back on the labor a little quicker? And could we have--.

A - Brad Anderson

And is the quality of the implementation lesser than it was before?

A - John Walden

Right, could the quality of implementation have helped us ramp quicker, so there's a number of things we're going to look at. We will look at those, we will adjust them, but we also want to be careful not to conclude that based on one quarter's results of a bunch of stores that we're in the wrong space, we absolutely think we're in the right space. We just have to optimize this now and anticipate that these kinds of things will happen, and we will deal with them in the future in this fashion.

A - Brad Anderson

But if I had to guess, I would guess that probably all of the things you mentioned are having some impact at this stage.

Q - Mark Rowen

All right. The other question I had was, given the strength in flat panel TVs, and you've been talking about triple-digit growth now for quite a while in that category, and it seems like the unit profitability on those TVs is pretty high, and the unit volume is starting to become pretty substantial, at least industry wide. I'm a little surprised that more of that didn't flow through to the bottom line. When you talked about competitive pressure or promotional environment, is it impacting that category in particular more than you've seen other categories, or not really?

A - Jennifer Driscoll

Ron, would you like to take that one remotely?

A - Ron Boire

Yes, Mark. I would say that it is not disproportionately impacting the flat, we, again, are extremely pleased with how we mixed out. We're extremely pleased with both the unit and dollar velocity in the category. I think ASPs, ASP declines, to give you a more accurate number than the directional number I gave in the call, were at the low end of our anticipated decline range when we look at the year to date declines and we look at the November declines. So I would not say that they are disproportionately hit by competitive pricing pressure. I think they are certainly the highlight, one of the highlight categories in the industry right now, so you're seeing a lot of advertising and promotional attention on it. But they're also a major driver for us and all of our competitors, so we're not seeing what I would call irrational behavior where people are trying to use this category to disproportionately gain share, or disproportionately drive revenue. I think we're seeing a competitive environment but good balance in that competitive environment.

Q - Mark Rowen

So that, well, then my original question, so if it's not that those are becoming a lot more promotional, I was surprised that the profitability from those big ticket sales didn't sort of flow through. So, Darren, can you talk at all about what's offsetting that?

A - Darren Jackson

Yes. Sure. Absolutely. So if you actually go into the detail of the press release you'll see for consumer electronics, our comparable store increase was 14%. The largest increase that we've seen in consumer electronics in better than two years. Offsetting that you can also see that we continue to be challenged in the entertainment software space. So I think it's fair that, as Ron highlighted in his call, and we see this phenomena in these cycles, that as we enter a new launch cycle, the old platforms begin to dive, and the software with it, and the profitability with it. We launched the new, we don't have enough units, quite honestly, to offset the drops, and we've been clear about this, that hardware doesn't come with much margin. Almost no margin. So consequently, we give it up in that part of our house, and that's what we saw in the quarter.

Q - Mark Rowen

Okay, great.

A - Brad Anderson

As we look forward, by the way, as we look forward to software, there's some, one of the things we referred to is the gaming cycle, which looks very optimistic obviously with both Xbox getting more units in the market and with Sony launching their new PlayStation 3 this year, and we also think there's a good likelihood that HD-DVD launches this year. So we've got some refreshment coming in terms of some of those cycles but it will be awhile before HD-DVD has a big financial impact.

A - Jennifer Driscoll

Thank you. Next question, please.

Operator

Our next question is coming from Scott Ciccarelli with RBC Capital Markets.

Q - Scot Ciccarelli

Darren, you used to talk about how 3% was kind of at the 0 leverage point for the Company. Obviously you've gone through quite a bit of changes. How should we think about, where is the 0 leverage point right now? What is incremental spend as you build infrastructure, and what do we think is going to be kind of the ongoing higher fixed structure.

A - Darren Jackson

Our current hypothesis is that it's above 3. Not to be flippant Scot, but I think a great example, last year in the third quarter our comp store sales were up 3.2%, our earnings were up 22%, and we leveraged SG&A by 30 basis points. I think that's part of the journey we're on and what we talked about today. Quite honestly, this third quarter was the largest quarter of all quarters of our transformation activities that we've experienced to date. What we're doing, and I tried to highlight this in my comments is that we're evolving and chasing capabilities to better manage that model. Scot, when you actually unwind the results, and the risk is we walk away from this call and conclude that customer centricity and that work is just not working. It is. So underneath what we're seeing in the initial waves is that we're seeing an accelerant in terms of operating income growth in the initial waves, we're seeing gross margin improvement above the chain in the initial wave, and I think quite frankly what we're not seeing at this point, or we may have just incorrectly assessed, was the productivity gains that we should get as we're launching these additional waves and the drain that it's having across all of management that's being felt in those stores and being felt in the balance of the stores, too. And so that's affecting all of the numbers. What we're committed to now, and you would expect this of us is that simultaneously with rolling out and implementing the new waves is to do a better job understanding what it takes to get productivity and balancing and beginning things that, as Brian highlighted, we're really, really quite good at, is beginning to optimize and understand GAAP management. We've already started that process, as you would expect us, and we're not backing off of our commitments that, our longer term goal is we should be able to see expense leverage and margin gains at a 3% comp store level. That's the longer term goal. What we're currently experiencing is that transition period, and we have to go in and make some choices based upon the evidence that we see now in order to strike that balance going forward. Is it going to happen in the fourth quarter? It's not. Is it going to happen as we go into FY '07? You bet it is.

A - Brad Anderson

One other, just one other thing on that, too. Both, the very complex initiatives here that require thousands of people to do them, like customer centricity and service are both places where our expenditures are higher than we had hoped in relationship to the revenue. I don't think that's a shocking outcome. It was the biggest risk we took as we drove into this space. And in both places we're seeing similar results, and as we mentioned earlier, refining things and building GAAP management. We've got some places where both systems are working extraordinarily well and some places where they're not working at all. And so that's what we call GAAP management, it's trying to figure out what the difference is between those two and manage the system for the best operating results. In both of those major areas, we have the same challenge in front of us.

Q - Scot Ciccarelli

Got it. Thanks a lot, guys.

A - Jennifer Driscoll

Hey, thanks, Brad and Darren. Next question, please.

Operator

Our next question is coming from Bill Sims with Citigroup.

Q - Bill Sims

Good morning, thank you. Question is on Geek Squad and its impact on comp. It looks like it's in the home office category for the first time this quarter. I might be mistaken on that, could you please confirm that, and then if so your overall comp in home office category is still down, and if it was just included this quarter it implied an acceleration and a deceleration of the home office comp. Can you comment on the contribution Geek Squad is having to that category and what we're seeing in the rest of the category?

A - Jennifer Driscoll

Ron, could you handle that from the road?

A - Ron Boire

I actually don't have the statistics in front of me but I would say that it is a contributor to the comp, but we are, as you know, lapping last year's launch of Geek Squad. So we're seeing revenue growth in Geek Squad. We're extremely happy with the customer satisfaction still on Geek Squad, and we're extremely happy with the way the teams are building services into the total solution. So I think if you kind of look into the release you'll see that we were pleased with our growth in notebook computers. What was not highlighted in the release, we were also pleased with, as we were the first quarter of the year, the growth of computing accessories exceeding the growth rate of notebook computing. We're seeing the desktop business continue to struggle as we're in transition from desktops to a more notebook-oriented business model. Also, in home office, we saw cellular phones recover nicely to a strong comparable sales gain in the quarter. So what you're seeing is I think in the home office category as we illustrated in the release, you're seeing a fundamental mix change and you're seeing, as it relates to Geek Squad, the teams putting together solutions that include the product and the services much more effectively.

Q - Bill Sims

And, Ron, can you confirm, is this the first quarter that Geek Squad was in home office comp category?

A - Darren Jackson

Always has been.

Q - Bill Sims

It always has been.

A - Ron Boire

I think it's always, I believe, Darren, you can confirm, it's always been there.

A - Darren Jackson

Always been there.

A - Brian Dunn

This is Brian Dunn. I would just add one comment to Ron's, and that is we've doubled our Geek revenue in the quarter, and again as Darren mentioned and I mentioned on the call, this plays to a strength of Best Buy's, and that is our ability to gap manage to find things, capabilities that are working well and to export them to the stores that are not grabbing them as quickly. Our confidence is unshaken and the focus of the Company is clearly in both our customer centricity scale and our Geek Squad scale, and our ability to gap manage we have a great deal of confidence in.

Q - Bill Sims

One quick follow-up for Brian. Brian, you commented on heightened competition coming from Canada contributing to the comp weakness. Can you just suggest where this competition is coming from?

A - Brian Dunn

Yes, I think what I'd like to do is ask Kevin Layden, who is on the call, Kevin, would you like to comment on the marketplace.

Q - Kevin Layden

Well, certainly not unlike the U.S. a lot of the mass merchants are definitely looking at consumer electronics. That's added a level of competition in Canada that has been higher than normal. It's not, would not be unusual for us to quote the source at this point who have been spending quite a bit more on advertising as well. So those are the two primary factors.

Q - Bill Sims

Thank you.

A - Brian Dunn

And I would just remind the call, remind everyone, that our market share gain was significant in Canada in the quarter and again that plays to our strength now of gap managing our operating model in Canada.

A - Jennifer Driscoll

Thank you, Brian, and thank you, Kevin. I'd like to take the next question, please.

Operator

Our next question is coming from Matthew Fassler with Goldman Sachs.

Q - Matthew Fassler

Thanks a lot and good morning.

A - Brad Anderson

Good morning, Matt.

Q - Matthew Fassler

I guess my question relates to costs and some of the investments that you're making. Do you see the outcome of this as actually scaling back on some of the investments, whether they be labor within the stores or the magnitude of conversion as opposed to kind of waiting out the improvement, and to the extent that you think we're likely to see some scaling back, in that investment, what's the time frame at which you think you might start to alter your investment framework and your investment levels?

A - Brad Anderson

Well, we're going to respond to what we see in the data, and so if the data tells us that something is not working as well as the hypothesis, then we've got to look at is it just a matter of time or was there a fundamental flaw in the analysis. In some places we will be scaling back. In other place we'll be taking a very careful look in relationship to what we actually see as an outcome and adjust accordingly. I think one of the strongest things, and one of the reasons we move so aggressively in this space is, you can look at all of these areas that are challenging for us, they're challenging in part because they're based on labor, and they're based on thousands of people, we're also in a system with relatively high turnover. So it's a relatively easy place for us to adjust based on what we find in the marketplace compared to if this was a lot of fixed investment. So you'll watch us. We'll see what happens. We'll be watching both the time, we'll try to figure out what the gap, one of the things, we keep referring to gap management, gap management if somebody is doing really well with the same strategy and somebody else is not, historically that's been an opportunity to try to bring up the average. So in those cases we probably would not disinvest. If nobody is doing well in this space, then we probably will back off on the investment.

Q - Matthew Fassler

And are there some areas of investment where you found that to be the case?

A - Brad Anderson

Oh, yes, there's absolutely, that's kind of an ongoing, I wouldn't say there's a customer that fits that description. We don't see that at all. Actually, we thought we would be, when we started with the five segments we thought some of those segments would be gone. None of the customer segments are gone. We're finding value in every segment. But there are a lot of, part of this process is you're constantly trying new things, and there are a lot of things you try that just don't work, and you have to back off of, and that's a living part of the process. So if we had, like in the first quarter, where results were better than what we anticipated, we did what we did during the balance of the year, we would double down in macro on the investment. In a quarter like this where the results are not quite as good as we hoped for then we're going to do some culling of various kinds of investments.

Q - Matthew Fassler

Has that started now in the fourth quarter given that you've had probably some insight as to where the payback has made sense and those areas where it hadn't?

A - Brad Anderson

About 30 seconds into the fourth quarter.

Q - Matthew Fassler

Fair enough. And then just finally, given that the comp was within your range, and given that the gross margin rate was within your range, it would seem like net-net, the expense dollars and the magnitude of costs you're putting in are sort of more of a problem, if you will, than the payout that you're getting on that. Is that accurate to say, or is it really both the return on that investment as well as the investment level that are not meeting your expectation?

A - Darren Jackson

Yes, Matt. Can I road map it for you?

Q - Matthew Fassler

Sure.

A - Darren Jackson

We reported $0.28 this morning. And, up, and we're not trying to hide from what's in that $0.28. $0.04 of that was gift card breakage, and we weren't counting on that. So you could say we did $0.24. The things are different than we expected honestly is that we had about a $0.03 miss in our Canadian business. We probably over, we didn't probably, we overspent our expenses by about $0.03. And so when we back up, we delivered the comp that we said and we have a couple of places that we got surprised. And so that's essentially the breakdown of how we're looking at it, and what you hear from us is that we are absolutely, we see benefits in the strategies that we're pursuing. We have some editing to do. We shouldn't be $0.03 overspent. And we're going to fix that. And in Canada, quite frankly, we were surprised. And similarly what you heard from Brian and Kevin is they're going to work to turn that around, too.

Q - Matthew Fassler

And, Darren, just to close that $0.03 of overspending is $0.03 that you're willing to pull back on? That's not subject to contemplation and further research. You just feel like that's $0.03 you can identify it and you know where you need to scale it back or is it a little bit of a more complicated process?

A - Brian Dunn

This is Brian. We are very committed that we have that $0.03 to pull back.

Q - Matthew Fassler

Thank you very much.

A - Jennifer Driscoll

Thank you, Brian, and thank you, Darren. Next question, please.

Operator

Our next question is coming from Colin McGranahan with Bernstein.

Q - Colin McGranahan

Good morning. I wanted to focus on the Geek Squad business. Can you help us understand whether that was an expense problem? You mentioned that it came up a little bit short as well relative to your expectations. Whether that was an expense problem and you overspent there as well, or whether you were putting Geeks in stores and you didn't get the revenue lift? Just comment on the utilization, both the in-store business and the in the field business relative to your expectations and what you've seen with demand so far.

A - Darren Jackson

So, Colin, here's what, I'm looking at the P&L. We are absolutely on our expense plan in terms of dollars. I tell you, we more than doubled the business in terms of Geek, but in terms of our revenue forecast, which was, as Brad said early, very ambitious in the quarter, we came up a little short in terms of the top line versus our forecast for the quarter. Now that being said, in a business that's growing by 100%-plus we should be that good in our ability to forecast something above that where we're trying to hire, trying to increase the sales force by 25% in a quarter. So I think at this point when we look across the expenses overall, versus what we had planned for, I think we still feel okay about that business. I think it's to John's earlier point, in many of these areas what we're trying to sort out is what the productivity curve of those additions look like and when they're going to come. And we're going to get better with that in every quarter, and we're going to edit the things where the productivity is not coming.

A - Brad Anderson

One of the things that I think we got to, is when you grow a business as fast as we're growing that business, when you're estimating your sales, it's an informed guess, because you don't have a historical pattern in which you're looking at. So you're taking a look at what you have, and then trying to guess, if I change at this rate what would it be, and what does it take. The second thing is that business because of the newness of the business, has not had a chance to be refined at all yet. So there is a lot of opportunity for refinement in that business.

Q - Colin McGranahan

And just to clarify, the lower revenue than expected, was that in0store or in the field, and do you think it had anything to do with the quality of the hires as you're getting now into the 12,000 Geek range?

A - Jennifer Driscoll

Something like 90% of the Geeks work in the stores.

A - Brian Dunn

We don't have, I don't have the numbers, this is Brian, I don't have the numbers right in front of me. I can tell you that our in-home business accelerated from where it had been running but we don't have the numbers in front of us.

A - Jennifer Driscoll

That's not how we manage the revenue. Apologize for that. So thank you, for your answers to the questions. Looking at the time I think I've got enough minutes left for one more caller to ask a question.

Operator

Our next question is coming from Steve Chick with JP Morgan.

Q - Steve Chick

Good morning. I guess Darren, your guidance for the first quarter for operating margins being down, I guess I was a little surprised by that given the year-over-year comparison, because fourth quarter of a year ago your margins were down, and specifically with gross, can you speak to what, what you, a little more specifically what you think your gross would look like I guess relative to what you reported for the third quarter? And I guess I'm looking at the third quarter as 90 basis points of expansion without the breakage.

A - Darren Jackson

Yes. To frame that question, you're absolutely on to the right point. As we look into the fourth quarter, and I'll have Ron give you a little more color, we're expecting gross margin rates to increase, no doubt about that, but at a lesser rate. And in the fourth quarter, what we're recognizing, quarter over quarter what's different is that we know Xbox will be significantly more in terms of the mix this year. MP3 players more, and that's putting, honestly, more of a, somewhat of a cap in terms of margin mix, and the other thing, as Ron talked about is we are starting to lap some of the benefits. As we look at some of the key drivers that are a little less important in December, and the lapping of some of those capabilities, it is constraining the gross margin rate from its year to date trends of 100-plus basis points.

A - Jennifer Driscoll

And now before, Ron, you add to Darren's answer, Steve, if you could put your phone on mute, we're hearing a clicking sound.

A - Ron Boire

Steve, I would just amplify some of the things Darren said. I think we, number one, we are lapping some of the structural improvements we made in pricing, market assortment, sourcing, and private label which had been driving a lot of the margin. We will continue to see improvements in those categories, but they're not the initial step change improvements we've seen over the last 12 months. Additionally, as Darren said, we're going to mix a little bit differently, so gaming with Xbox we expect to be a growth category and a comp driver in the quarter. iPod/MP3 continues to be a significant comp driver at lower mark-on margin rates, but we, again, do expect to see a gain in margin rate in Q4 but not the kind of blistering pace you've seen the last few quarters.

Q - Steve Chick

So should I compare that, I guess, if we assume adjusted gross for Q3 was up 90 basis points, as we look at the fourth quarter, are you assuming right now that the fourth will be up less than that?

A - Darren Jackson

Yes.

A - Ron Boire

Yes, we think that's a safe assumption.

Q - Steve Chick

That's helpful. Second thing, if I could, so if we're assuming down EBIT margins for the second half here, I guess it looks like you might be a little bit up for the year. I know you're not ready to give FY '07 guidance until later but you're a far cry from your 7% operating margin target as you head into FY '07. Can you speak a little bit to how much up you might think FY '07 might look like at this point?

A - Jennifer Driscoll

Sorry, we're out of time, Darren.

A - Darren Jackson

I think that's an absolutely fair question.

A - Brad Anderson

I do, too.

A - Darren Jackson

Absolutely fair question. And so here's what I'd say. We are right in the throes of our strategic planning process. When we look at the things that are driving margin improvement, we, clearly, we have not lost any confidence around the supply, we haven't lost any confidence, honestly, around the four initiatives and what we'll evaluate as the timing of them. So we're clearly--.

A - Brad Anderson

Let's go specifically through each four of those. For instance, the challenge we had in Canada was one of the places where we're going. Some of the reason we had a challenge in Canada is that there's like the payroll initiative that went on in the quarter, put the system through a lot of change to try to improve the earnings result to get to the 7 by 7. As they're doing that, as you go through that process, we're looking for what the impact has been, and so, in a number of these places, we're not getting the outcome that we were looking for, which is why we're not getting the results. So we're sharing with you as we go in terms of our objective. In Canada we didn't quite get the results we're seeing, with centricity we were also looking or basically, centricity and service we're also looking for an improvement in gross margin rate. That did not also happen in the third quarter. Did happen, by the way, in the first quarter. So the question is going to be whether we can, whether we see as these things mature, the change that we initiated in this quarter has a maturing positive result that actually drives the outcome. If it doesn't, then obviously it puts some challenge to our ability to get to that 7% objective or moves it way back from a time standpoint. So other things like the sourcing and IT initiative gave us the benefit that we were looking for.

Q - Steve Chick

Yes.

A - Brad Anderson

So we've got, that's part of what you see in terms of the margin rate growth. Some of the stuff that was in there is giving us good indicators, and other things are not at this stage, and we'll continue to give you a read as we get those results and we certainly, on none of these initiatives, have we lost faith that we can get there. But obviously some of them are not going as well as we hoped at this moment.

Q - Steve Chick

Okay. That's helpful. Thank you.

A - Brad Anderson

Thanks very much.

Charles Marentette, Senior Director of Investor Relations

Thank you Darren and Brad for that, and thank you, and thanks to our audience participating in our third quarter earnings conference call. Before we end, may I remind you that this conference call will be available to you for replay by dialing 973-341-3080, and entering the personal identification number of 6777800. The replay will be available from about 1:00 p.m. Eastern Time today until next Monday, December 19. To hear the replay on the web visit us at our website, www.bestbuy.com and go to the Investor Relations section. If you have additional questions about our third quarter earnings, or our fourth quarter outlook, please call Jennifer Driscoll at 612-291-6110, or you are welcome to call me, Charles Marentette, at 612-291-6184, and reporters should contact Sue Busch, Director of Corporate Public Relations at 612-291-6114, and I think that's probably enough phone numbers, so we are going to conclude the call. Thank you.

Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.

Related:

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Full Transcript of Best Buy’s F3Q06 (Qtr Ending Nov 26, 2005) Conference Call - Q&A (BBY)
This Transcript
All Transcripts