Best Buy's Dunn: it's great to be a shareholder

DSN Retailing Today, July 11, 2005 by Laura Heller

MINNEAPOLIS -- Best Buy's annual shareholder meeting was a jovial event, thanks to strong growth in both the company's full fiscal year and first quarter, with continued earnings gains, comp-store sales increases, international expansion opportunities an announced 8-2 stock split and increase in quarterly dividend payouts. "It's great to be a Best Buy shareholder," said Brian Dunn, president of retail in North America.

"As you can see, we're trending in the right direction," said founder and chairman Richard Schulze. "We all have our own microphones this year," in reference to the company's previous need to share mouthpieces during presentations.

Levity aside, Best Buy blew out their numbers last month when they announced earnings gains of 85%, acceleration of its customer-centricity program and expansion of the Geek Squad stand-alone formats, Magnolia stores and Best Buy for Business program for small business customers.

"Let's get to the core of our story--it's about 'old school' and 'new school,'" said ceo Brad Anderson, referring to the retailer's new growth strategy called customer centricity. "We started with the dream of taking a teeny tiny company in Minnesota and became a much bigger company than we ever imagined."

The new initiatives, say management, will accelerate the company's growth and allow the retailer to add more than 200 additional locations in the United States than previously thought, for a total of approximately 1,000 units.

Best Buy will convert up to 200 stores to its centricity format this year, an initiative that is yielding comp-store gains more than two times that of the rest of the chain. The opportunities provided by centricity and reductions in costs for new stores could yield up to five more years of growth than management previously believed.

Much of the company's focus this year is on employees at the store level, where empowerment and reward helps to fuel Best Buy's centricity program. Turnover in these stores is currently at 61% compared to 81% for the chain. "We are seeing the company more dependent on what happens at the base of the company, rather than at the top," said Anderson. "Innovation is coming from the core."

Best Buy will test three additional and unidentified customer segments this year, an enhanced version of the Magnolia stand-alone format, open two more eq life stores and is looking at expansion opportunities for its studio store businesses that currently include Studio D and Escape.

Best Buy is also pursuing international opportunities, announcing plans to expand into China earlier this year. "The growth potential seems to be greater than any place in the world," said Anderson. The company has opened offices in China and is looking into various methods of entering the market either via an acquisition or partnership there. And as for those 1,000 stores the company said it would ultimately operate in North America, Anderson believes that number could be conservative, given the chain's increasing ability to lower the costs of new stores, increase market share and expand into new markets with a variety of store sizes.

"We are at a new chapter in Best Buy's history," said Darrin Jackson, cfo. "This chapter is about accelerating into the future."

BEST BUY SCORECARD (FY 04)

FULL YEAR SALES: $27.4 billion

FULL YEAR EARNINGS: $934 million

10 SALES (DOMESTIC): $5.5 billion

1Q EARNINGS (TOTAL COMPANY): $170 million

1Q COMP STORE SALES (DOMESTIC): 4.5%