This summary is based on the first quarter fiscal 2007 earnings call conducted by Best Buy Corp (BBY: chart) on June 19, 2007.

Management:

Vice Chairman of the Board, Chief Executive Officer: Bradbury H. Anderson
Chief Financial Officer, Executive Vice President Finance: Darren R. Jackson
Chief Executive Officer Best Buy International: Robert A. Willett
President, Chief Operating Officer: Brian J. Dunn
Senior Vice President, Consumer Electronics: Mike Vitelli
Senior Vice President, Computer Merchandising: David Morrish
Senior Vice President and Chief Financial Officer, Best Buy U.S.: James L. Muehlbauer
Vice President, Entertainment: Jill Hamburger
Vice President, Services Business Group: Sean Skelley
Senior Director, Investor Relations: Charles Marentette
Vice President, Investor Relations: Jennifer Driscoll

Key Investors Issues

- Earnings per share was 39 cents, down from 47 cents in the prior year quarter.
- The firm repurchased 8.7 million shares of common stock at an average price of $47.21 per share, for a total of $412 million.
- An additional 34 new stores were opened globally.
- Best Buy acquired Speakeasy for $100 million.

First Quarter Highlights


Total revenue was $7.93 billion, up 13.9% from $6.96 billion in the prior year in line with expectations and reflected the net addition of 230 new stores.

Revenue growth was driven by international business, with Canada delivering strong comparable store sales gain of 12.8%, against domestic comparable store sales growth of 1.7% due to softer consumer demand in the aftermath of strong Super Bowl sales in the US.

The comparable store sales gain was driven by an increase in the average transaction size, as the company''s revenue mix continues to reflect a shift toward higher-ticket items.

Consumers made more purchases online, and the company continued to add features and capabilities to its websites leading to online revenue growth of over 20%.

- Despite modest sales gains, the firm has been able to grow its TV market share and the the overall household penetration rate for flat panel TV is no more than 20% providing more growth opportunities.
- In the gaming business, growth was slower than anticipated as pricing and availability hampered the take-up of new gaming platforms.
- Sales of notebook computers were strong, fueled by consumers’ interest in Vista. In addition, the blue shirt associates and the Geek Squad agents, enabled strong growth in this category.

Earnings decreased 17.9% from $234 million or 47 cents a share in 2006 to $192 million or 39 cents per share, following declines in the gross profit rate, due to strong revenue growth in lower margin products.

- The gross profit rate was 23.9% versus 25.4% in the prior year, as a result of the inclusion of the China business acquired last June, which carries a lower gross profit rate.
- Domestically, the increase of lower-margin products in the revenue mix, particularly notebook computers and gaming hardware, also added to the decline.
- In addition, an increase in the products completing model transitions in the home theater area (resulting in markdowns) and lower profitability of computer transactions were also factors in the decline in the gross profit rate.
- Rate issues also accounted for the balance of the U.S. gross profit rate decline, related to television product transitions, the promotional environment and lower profitability of computing transactions.
- The management attributed missing earnings to two scenarios i.e. due to poor strategic choices or initiatives and overspending or when strategy is consistent with the long-term results, but earnings are still off.

Selling, General and Administration expenses were up 13.9% from $1.43 billion in 2006 to $1.63 billion though it remained flat as a percentage of revenue.

- The SG&A rate benefited from leverage on strong revenue increases in Canada, the inclusion of the China business, which operates under a lower-cost operating model and company-wide spending control.
- These factors were offset by an SG&A rate increase in the United States, as fixed costs grew faster than revenue, as investments in initiatives to support customers, such as store operating model, call centers and service facilities were higher.
- Additionally, the company continued to invest in growth drivers for the future, including new store openings and international capabilities, opening 30 stores compared with eleven 11 in the prior year.
- The company also concluded certain legal issues, which added expense, though these increases were partially offset by the restructuring and severance costs of $26 million or 3 cents a share last year.

Capital Allocation:

- An additional 34 new stores were opened globally and the firm remains on track to open a record 135 stores this year.
- The 20,000 square foot stores’ productivity jumped 10% to $825 of annual sales per foot and coupled with changes in the competitive landscape, provide increased opportunity for new store growth.
- The acquisition of Speakeasy was concluded for $100 million, allowing the company to build capabilities for serving small businesses.
- Share repurchases increased to $412 million and these are expected to continue for the balance of the year.

International Performance:

- Revenue increased by 53% from $797 million in 2006 to $1.2 billion, following growth in notebook, computers and gaming.
- SG&A as a percentage of revenue improved to 20.2% from 23.1% in the prior year reflecting revenue gains, leverage of fixed costs, and more effective advertising.
- Despite strong revenue growth, the segment realised an operating loss of $3 million from a profit of $3 million in 2006, due to increased investments.
- Improvements in Canada were offset by infrastructure investments in China, the build-out of the international support team, start-up infrastructure costs associated with launching Geek Squad in London, and preparations for greenfielding stores in Mexico and Turkey.