By Joshua Freed The Associated Press
Published: Apr 1, 2005
MINNEAPOLIS (AP) - Best Buy Co., the nation's biggest consumer electronics chain, said Friday its fourth quarter earnings rose thanks to a February sales surge but offered a disappointing forecast for this quarter. It also said it will phase out using mail-in rebates over the next two years, bowing to customer complaints. Its shares fell more than 5 percent.
With mail-in rebates, customers pay a higher price but get money back - sometimes hundreds of dollars - by mailing in copies of receipts and a form.
"Our customers are telling us they just hate the process," General Merchandise Manager Ron Boire said during a conference call to discuss the earnings report.
He described that process as "they send it in, they remain aggravated until they get their check."
The rebates have aggravated regulators, too. Wisconsin consumer protection officials last year looked into the rebates after 89 consumers complained, and Ohio Attorney General Jim Petro sued Best Buy in August in part over complaints about rebates.
Boyer said the phase-out would happen over the next two years, as Best Buy shifts its promotional spending to programs like its "Reward Zone," where customers pay an up-front fee but earn points toward future discounts.
For the three months ending Feb. 26, Best Buy earned $572 million, or $1.69 per share, up from $469 million, or $1.40 per share, a year ago. Excluding a gain on the disposal of its Musicland division, the retailer reported earnings from continuing operations of $522 million, or $1.55 per share. That matched the consensus of analysts surveyed by Thomson First Call.
Revenue was $9.22 billion, up 9 percent from $8.45 billion a year ago and about even with analyst expectations.
The sales surge included growth in low-margin products such as digital music players, movies, and laptop computers.
Best Buy shares fell $2.78, or 5.1 percent, to $51.23 in midday trading on the New York Stock Exchange.
The earnings had been delayed from Wednesday because the company wanted to incorporate a ruling that gave it a $50 million tax benefit on the disposal of its Musicland division.
For the full year, Best Buy reported net income of $984 million, or $2.94, up from $705 million, or $2.13 per share, a year earlier. Revenue rose to $27.43 billion from $24.55 billion reported in 2004.
For the first quarter of fiscal 2006, the company said it expects to earn 27 to 32 cents per share. Analysts were expecting 38 cents per share, minus a nickel per share for stock-based compensation. That would put the high end of Best Buy's guidance a penny below analyst expectations.
For the full year, Best Buy said it expects to earn $2.95 to $3.10 per share.
The company also said it would convert all of its U.S. Best Buy stores to its "customer centricity" model of focusing on certain customer segments within three years - faster than previously planned. Chief executive Brad Anderson said 170 to 220 stores would be opened or converted to that format during fiscal 2006.
Best Buy said it was expanding its customer centricity idea because of strong revenue gains at test stores. Comparable-store sales gains for the fourth quarter were 8.4 percent at the test stores, versus 2.3 percent at other U.S. Best Buy stores. But the conversion squeezed profits at the test stores; Best Buy said it expected that to be temporary.
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