Best Buy's Expenses Rise

MINNEAPOLIS-Best Buy’s year-over-year sales and earnings were up during its third quarter, despite increases in spending as the electronics retailer renovated stores across its portfolio. So far the company has converted 284 of its 930 North American units, adding products and services such as home theater centers.

Same-store sales rose 3.3% and total revenue was up 10%, to $7.3 billion during the quarter, which ended Nov. 26. Net earnings jumped 11%, to $125 million. But selling, general and administrative spending increased to 21.8% of revenues from 20.3% in the year-ago quarter.

“As a whole we are not seeing the return we expected,” said Brad Anderson, Best Buy’s vice chairman and chief executive officer of the renovated stores, during a conference call. The company’s spending has reached an “unsustainable level” and executives must “scrutinize investments,” he adds.

The company also faced challenges in Canada, where its same-store sales fell by 0.5% due to a tough competitive environment, executives say. Best Buy opened its first seven stores in the province of Quebec along with a total of 16 in the country during the quarter. Best Buy currently operates 166 stores under the Best Buy, Future Shop and Geek Squad names north of the border.

Overall, Best Buy opened 39 new stores during the quarter, 27 of them at 30,000 sf and five at 20,000 sf, as well as three Geek Squad units. During the last 12 months the company has opened 107 new units and closed two.

Best Buy executives predict earnings per share in the $2.05- to $2.15-range, up from $1.75 last year. They are also forecasting a same-store sales increase of 4% and total revenues of about $30 billion.