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Best Buy Reports Q3 Profit, Warns Promotions Could Hurt Holiday Margins

Best Buy Inc. reported a profit of $54 million, or 16 cents a share for its third quarter ended Nov. 2, compared with a year-earlier loss of $10 million, or three cents a share. Despite the third quarter profit, however, executives warn that competitive holiday pricing and the company’s price match policy may hurt margins in the fourth quarter.

Hubert Joly, Best Buy president and CEO, commented, “Our third quarter top-line results make it clear that our focus on delivering our unique customer promises is starting to pay off. It is also clear that our efforts to control costs and to bring greater efficiency to our operations are improving our profitability. While we remain mindful of the fact that we still have a long way to go, we are pleased with the progress of our Renew Blue transformation efforts.”

Highlights from the company’s report include domestic comparable store sales increase of 1.7%, Hubert said. Additionally, the company drove a 15.1% increase in domestic comparable online sales, enhanced its multichannel customer experience with a nearly 400 basis point increase in its Net Promoter Score and eliminated an additional $115 million in annualized costs which brought its total annualized cost reductions to $505 million towards a target of $725 million.

Sharon McCollam, Best Buy evp, CAO and CFO, commented, “We are encouraged by the progress we have made against our Renew Blue priorities and are optimistic about the strength of our holiday-specific merchandising, marketing, and customer experience initiatives… But as we enter the fourth quarter, we are also highly aware of the public statements that are being made by our competitors as it relates to their promotional plans for Black Friday and the fourth quarter. We know that we will be facing an increasingly promotional environment. As such, we want to give you color on our response to this competitive situation and our perspective on how these pressures could financially impact the fourth quarter.

First and foremost, we are committed to being competitive on price. As Hubert mentioned, it is table stakes in our transformation. So if our competition is in fact more promotional in the fourth quarter, we will be too and that will have a negative impact on our gross margin.

We are also committed to serving our customers when and where they want to be served, and in light of our competitors’ decisions to open early for Black Friday, we too are opening our stores at 6:00 pm on Thanksgiving Day and not closing them until late evening on Black Friday. This requires increased promotional offers and an incremental investment in store payroll. But again, it’s table stakes.”