This summary is based on the second quarter fiscal 2008 earnings call conducted by Best Buy Co., Inc. (BBY: chart) on September 18, 2007.
President, Chief Operating Officer: Brian J. Dunn
Chief Executive Officer, Best Buy International: Robert A. Willett
Senior Vice-President, PC Mobility Group: David Morrish
Senior Vice President, Services: Sean Scully
Senior Vice President and Chief Financial Officer, Best Buy U.S.: James L. Muehlbauer
Senior Vice President, Consumer Electronics: Mike Vitelli
Vice Chairman of the Board, Chief Executive Officer: Bradbury H. Anderson
Chief Financial Officer, Executive Vice President – Finance: Darren R. Jackson
Senior Vice President, Finance and Treasurer: Ryan Robinson
Senior Vice President, Entertainment Group: Julie Owen
Investor Relations: Carla Haugen
Investor Relations: Jennifer Driscoll
Key Investors Issues
- EPS were 55 cents a share compared to 47 cents a share last year.
- Net income rose to $250 million from $230 million a year earlier.
- Sales jumped 15% to $8.75 billion, led by a 54% surge in international results.
Second Quarter Highlights
International revenue growth reflected the gains in Canada, as well as the acquisition last summer of Five Star, which continues to grow its top line at rapid pace.
Five Star stores continue to be on plan for revenue as the company focuses on meeting the needs of the Chinese consumer. These stores will look different to the customers compared to the in market Best Buy stores, yet they will be consistent with overall strategy, including more local autonomy for the staff, inventory and the merchandising.
One of the key drivers of Best Buy''s out-performance this quarter was the result in international. The company experienced double-digit comparable store sales at both Futureshop and Best Buy stores in Canada. These gains came primarily from an increase in the average ticket without sacrificing margins.
Gross profit rate for Canada improved by 50 basis points.
- With the help of good execution and teamwork, the company improved SG&A in Canada by a full 220 basis points, due to the expense leverage on higher volumes, coupled with more disciplined spending.
- Operating profits in Canada improved by more than $30 million year over year. Altogether, operating profit in Canada, which was 0.5% five years ago, now is on track to approach 4% for this fiscal year and on its way to 5%.
- The company has acquired a minority shareholder position in Carphone Warehouse.
- The company has reached agreements on launching home computing support services in the United Kingdom.
Computing’s lower margins tend to get negative ink.
Yet in the first half, operating profits in home office increased. The drivers included higher volumes, lower cost, and a better understanding of customers needs. The company had solid double-digit comparable store sale gain in sales of notebooks to consumers. Performance in desktop computers was more modest, yet was still industry leading.
Vista provided a new way to utilize computers and the company adapted business to take advantage of that occurrence. At the same time, the launch of Vista operating system created new learning challenges for customers. This transition was made easier because of the support provided by Geek Squad agents. Specifically, Geek Squad agents personalized the screens for Vista customers so they would better understand its features and benefits.
Over the past few years, the company has been able to mine customer database and gain a much better understanding of how consumers want to utilize their computing products.
The company now understands that for sum, the computer is becoming a tool of self expression or creativity. For others, it is a tool that increasingly helps them stay connected and share their lives with loved ones.
The company has used these insights to boost results. Specifically, it has worked with manufacturers to create unique PCs, PCs that support the pursuits of personal experiences. The company recognizes that customers have changing preferences, including greater interest in variations of size, style, design and color.
A customer insight about the power of the Apple brand prompted other adaptations.
The company had tested Apple computers four times in recent years and never really cracked the code. However, last year, supported by Geek Squad, Apple labor and customer insights, the company landed on a new successful model. So the company expanded the test of 50 stores and approximately 200 Best Buy stores carry Apple computers. By the end of October, the company will have approximately 270 Apple locations. The company will monitor the results through the holidays and consider more Apple locations after year-end. So far, it appears that this business is largely incremental and it is definitely generating customer traffic.
Another way the company uses customer insights is to create unique product bundles that bring the whole experience to life. Look for new bundles this fall in print ads and end caps and online. The company is utilizing Canada’s approach with a unified, multi-channel story, another example supporting Bob’s point.
The company has learned over the last few years how integral services are to customer centricity. 
