Not Best Buy's Best Day

On the same day its chief rival, Circuit City Stores (Richmond Va.), was reporting strong first quarter results (see adjoining item), Best Buy Co. (Eden Prairie, Minn.) reported that its first quarter profit rose 27 percent, on strong sales of digital products.

Sales for the quarter increased 24 percent, and same-store sales rose 5.7 percent.

“Our Best Buy stores attracted high levels of customer traffic,” said chairman and ceo Richard Schulze, “as shoppers bought more digital products, such as high-definition televisions, DVD players and camcorders.”

However, both companies'stocks took a beating on the news. Best Buy shares fell $2.51 and Circuit City's slipped 30 cents. One of the fears, analysts explained, was that the competing retailers would continue to engage in a price war, which had helped fuel first quarter results. Much of the quarterly performance came from price cuts and promotions as the two chains tried to keep consumers out of price clubs and Wal-Mart stores.

But Best Buy also said it was likely to miss second-quarter earnings estimates, partly due to the costs of expanding its electronics chain in Canada. The company is in the midst of launching Canada's first eight Best Buy stores later this year. In addition, the company is expanding its Future Shop chain, a 97-store, Burnaby, B.C.-based electronics retailer Best Buy purchased in November 2001.

Future Shop will open nine new outlets this year, as the parent company aims to keep both banners alive in Canada. Best Buy outlets in Canada are larger, and display their merchandise in grab-and-go palettes on the sales floor. Best Buy said the Canadian business reduced its earnings by 5 cents a share in the quarter, which was within the company's expectations.

Best Buy also said it is in the initial stages of exploring expansion opportunities in Europe, South America and Asia, and intends to open smaller-format Best Buy stores in the U.S.