Best Buy’s domestic segment, comprised of U.S. Best Buy, U.S. Geek Squad, Magnolia Audio Video and Pacific Sales operations, reported operating income of $329 million, an increase of $140 million, compared with the prior year’s period.

The 140-basis-point operating income rate improvement reflected leverage on higher revenue combined with a less promotional environment. The domestic segment’s revenue totaled $8.2 billion, an increase of 15% over the prior year fiscal third quarter. The revenue increase was driven by the opening of 96 net new stores and a comparable store sales gain of 6.1%. Pacific Sales, a retailer of high-end home improvement products, contributed revenue of $75 million during the quarter, a decrease of 3% over the prior year fiscal third quarter, amid a challenging housing environment.

Best Buy finished the fiscal third quarter with an enhanced mobile phone experience, branded Best Buy Mobile, in 181 U.S. Best Buy locations and at seven stand-alone locations.

The company intends to remodel all of its U.S. Best Buy stores within the next two years to include the Best Buy Mobile experience. The decision to expand was based on early positive top-line results and its outlook for growth within the mobile business in the United States. As planned, the company enhanced its computer shopping experience with Apple computing products at 76 additional U.S. Best Buy locations this quarter, resulting in 286 total locations today. The company also announced it expects to offer Dell notebook and desktop computers in all U.S. Best Buy stores, beginning on Dec. 30, 2007.

The company’s international segment, comprised of Best Buy and Geek Squad operations in Canada and China, Five Star operations in China, and Future Shop operations in Canada, generated operating income of $22 million, compared with operating income of $7 million in the prior year’s period.

The significant increase in operating income was driven primarily by the comparable store sales gain, new store openings and SG&A leverage. The international segment experienced a mix-driven decline in its gross profit rate that was more than offset by 110 basis points of SG&A leverage. The company attributed its expense improvement to leverage on higher revenue and expense control. Including investments in infrastructure, new store openings and preparations to launch stores in Mexico and Turkey, the international segment improved its operating income rate by 80 basis points as compared with the same period last year.

International segment revenue rose 32% to $1.7 billion.

The third-quarter revenue increase was driven primarily by a favorable foreign currency exchange rate, a comparable store sales gain of 9.3% and the opening of 31 net new stores.

- In Canada, the nearly 9% comparable store sales gain reflected strong consumer interest in video gaming hardware, flat-panel TVs, notebook computers and GPS devices at both Future Shop and Best Buy stores. The Canadian operations posted a 120-basis-point improvement in its operating income rate through leverage on its revenue growth, a more efficient promotional strategy and solid retail execution.
- Revenue from retail operations in China grew 42% to approximately $300 million, including the impact of new store openings and a comparable store sales gain of nearly 13 %.

Best Buy’s comparable store sales gain was driven by higher revenue from video gaming, flat-panel TVs, notebook computers and GPS products.

These gains more than offset comparable store sales declines in projection and tube TVs, DVDs and CDs.

Best Buy’s revenue mix for the third quarter of fiscal 2008 was led by growth in the entertainment software revenue category.

The entertainment software category, which comprised 19% of third-quarter revenue, increased 23.1% on a comparable store sales basis. A strong double-digit gain in comparable store sales of video gaming was fueled by strong sales of hardware, which offered better in-stock levels and attractive pricing, as well as new software. These gains were partially offset by an expected comparable store sales decline for DVDs and CDs.

The home office revenue category accounted for 28% of fiscal third-quarter revenue and had a 6.5% comparable store sales gain.

A solid double-digit comparable store sales increase for notebook computers fueled the growth as customers continued to opt for mobility. The gain from notebook computers was partially offset by a comparable store sales decline for printers, phones and monitors.

The services revenue category accounted for 6% of third-quarter revenue.

On a comparable store sales basis, the services category increased 5.6%. A solid double-digit gain in repair revenue plus a low double-digit gain in computer and home theater services drove the comparable store sales increase. These results were offset partially by a single-digit decline in commissions from the sale of extended service contracts.

Consumer electronics, which represented 41% of third-quarter revenue, posted a 2.4% comparable store sales gain.

Within consumer electronics, GPS products led the way in the comparable store sales gain, as navigation devices become increasingly affordable and easier to use with increased features. Flat-panel TVs experienced a double-digit comparable store sales gain due to attractive pricing and improved assortments of TVs in larger screen sizes. Total television comparable store sales were unchanged year-over year as flat-panel TV growth was offset by declines in comparable store sales of projection and tube TVs. Digital imaging also drove a mid-single digit comparable store sales gain as customers opted for the premium experience that digital SLR offers.

The appliances revenue category, which totaled 6% of fiscal 2008 third-quarter revenue, had a comparable store sales decline of 1.8%.