By Drew FitzGerald And Michael Calia
Best Buy Co. said sales grew at the fastest rate in four years,
helped by a more disciplined approach to discounting, greater
investment by suppliers in its stores and strong demand for the new
iPhone.
The unexpected sales gain makes Best Buy the latest big-box
retailer to report better-than-expected revenue in the months
leading up to November, suggesting that constraints on consumer
spending may be easing slightly. But like Target Corp. and Wal-Mart
Stores Inc., which also posted surprise sales gains, shopper
traffic to Best Buy fell in the quarter.
"We've had a more favorable environment and then candidly we've
gained share," Best Buy Chief Executive Hubert Joly said in an
interview. "This is encouraging for the country as a whole."
Best Buy is in the midst of a turnaround plan put in place by
Mr. Joly, who joined the retailer two years ago as its sales were
being ravaged by cheaper online competitors. The company has
invested heavily in its website and has leaned on suppliers to help
finance improvements to the chain's 1,400 stores to try to attract
more shoppers to come in and splurge on its growing inventory of
items priced below $100, such as mobile phone and tablet
accessories.
Sales at stores open at least 14 months grew 2.2%, the chain's
biggest quarterly gain since the start of 2010. Best Buy's overall
profit for the three months through Nov. 1 nearly doubled to $107
million from a year earlier. Revenue nudged higher to $9.38
billion.
The improved performance pushed shares of Best Buy up 7.7% to
$38.29 midday Thursday, topping the level they reached in January,
before the company reported an unexpected sales slump over last
year's holiday season.
Looking ahead to heavy discounting during this year's holiday
shopping season, Best Buy executives warned that fourth-quarter
sales would be flat.
"The promotional environment is very intense," Mr. Joly said
during a conference call. "It is certainly not less intensive, and
if anything it's probably a little bit more intense than last
year."
In the third quarter, the company said it took a more considered
approach to marketing and discounts. It is trying to use a more
targeted approach to online marketing sending consumers
personalized marketing offers, which helped boost domestic online
sales by 22%, though they only account for about 7.5% of total
revenue.
The company noted that its electronics sales outperformed the
industry average as calculated by market researcher NPD Group which
found overall sales of consumer electronics slipped over the same
period. The NPD figures don't include mobile phones or videogame
products, two categories that Best Buy said it sold especially well
during the quarter.
Best Buy also got a boost from selling installment-billing plans
for mobile phones, the value of which the company could recognize
upfront. The company sold more profitable products like smartphone
cases than it did last year, partly because the chain's suppliers
invested in sleeker mini-stores that showcase brands like Apple
Inc., Samsung Electronics Co. and Sony Corp.
Many of those brands picked up the tab to train and staff those
stores, allowing Best Buy to approach more shoppers without
boosting its own expenses. Mr. Joly is in the process of cutting
annual costs by as much as $1 billion. In the most recent period,
the company increased its yearly cost savings from its initiative
by $65 million to $965 million.
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and
Michael Calia at michael.calia@wsj.com
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