Game Sales Pump Best Buy Earnings

| About: Best Buy (BBY)

Best Buy posted a better-than-expected 71% gain in FQ3 earnings-per-share on a 17% increase in revenue, sending its shares up over 4% in pre-market trading. Gross profit margins were flat at 23.5%, while operating income was up 1.2% to 3.5%. Net earnings were $228 million ($0.53/share), up from $150 million ($0.31) a year ago. Quarterly revenue was $9.93 billion, up from $8.47 billion last year. Both EPS and revenue beat consensus analyst estimates of $0.40/share on revenue of $9.42 billion. Comps were up 6.7% during the quarter.

Looking ahead, CFO Jim Muehlbauer boosted Best Buy's full-year EPS outlook to $3.10 to $3.20, from previous guidance of "the top half of the range of $3.00 to $3.15." The firm said it now expects to open 150 new stores in fiscal 2008, up from 130-135 previously. "When we get it right for the customer and the employee, it’s electric. It’s very rewarding when it all comes together, like it did this quarter," CEO Brian Dunn said (full earnings call transcript later today).

Entertainment software posted a huge 23.1% jump in same-store sales, and comprised 19% of Q3 revenue. Consumer electronics (+2.4% comp) led the revenue mix with 41%, followed by home office (+6.5% comp) at 28%. Appliances (-1.8% comp) accounted for 6% of quarterly revenue. Its Pacific Sales unit, which sells high-end home improvement products, saw revenue decrease 3% to $75 million amid a challenging housing environment.

In a Dec. 11 note, Morningstar analyst Brady Lemos said, "We think Best Buy will benefit from a shakeout in the consumer electronics industry. Virtually all of Best Buy's closest rivals, including Circuit City (NYSE:CC) and Tweeter, have struggled to remain profitable as competition has heated up and consumer spending has slowed. As pricing pressures intensify, we expect Best Buy to further distance itself from its peers and emerge as an even more dominant specialty retailer once consumer spending rebounds."

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